Economic View on Corporate Law and Corporate Governance in Europe

Abstract

Firms are a crucial part of the explanatory set-up of the economy. They are the dominant organisation of the modern world. As companies are one of the most important social and economic powers in an advanced economy, an efficient corporate legal framework is of considerable importance. This article describes the subject ‘corporation’ and corporate law from a European perspective, which considers a firm as a complex set of contracts. The most important characteristics of a corporation and its economic (dis)advantages, legal personality, limited liability, centralized management and free transferability of shares, will be discussed. The internal structure of the corporation will also be analysed. First, the difference between the continental European ownership structures and the Anglo-Saxon structures is illustrated. Next, legal instruments to mitigate the conflicts between management and shareholders and between controlling and minority shareholders are assessed. The last section includes a summarization of the agency relationship between creditors, employees and other stakeholders of the corporation. All in all the existing empirical studies have only established a clear link of performance (dis)advantages of European company law for a limited number of topics. Much more research is required.

Keywords: Corporation, agency problem, corporate law, corporate governance

JEL Classification: G32, G34, K22