RT Generic
T1 A carrot and stick approach to discipline to discipline self-dealing by controlling shareholders
A1 Gutiérrez, María
A1 Saez, María Isabel
A2 European Corporate Governance Institute, 
AB This paper presents an innovative approach to the regulation of self-dealing by controllingshareholders. Our proposal is grounded on the identification -through the lenses ofeconomic analysis- of the shortcomings inherent in the existing legal solutions, rangingfrom the absolute prohibition of self-dealing, to the prohibition of voting with conflictinginterests, or to the imposition of fairness duties to the majority shareholders.We present our proposal for an alternative regulation, based on the use of options, in a twoperiod game between the controlling shareholder, who is able to pursue an identifi ed selfdealingopportunity, and the minority shareholders, who desire to determine the meritsof this business opportunity. We show that our regulatory proposal is more efficient thanexisting regulation in the circumstances of our model. The enhanced efficiency of our proposed regime is mainly due to two novel characteristicsof our approach. First, it takes advantage of the repeated nature of the relationship betweenthe controller and the corporation. In particular, our proposal implies that obtaining futureprivate benefits requires limiting current private benefits. By doing this we can provideat no cost an additional incentive that aligns the interest of the controller with that ofthe small shareholders. Second, we allow the controller to determine the level of privatebenefits that he will extract in each period and apply an automatic penalty for excessivelevels. By doing this we eliminate both the costs of collective action, and the costs of legalaction that critically affect the outcome of the existing regulatory regimes
YR 2010
FD 2010-01
LK https://hdl.handle.net/10016/12460
UL https://hdl.handle.net/10016/12460
LA eng
NO This research is supported by a research grant from the Dirección General de Universidades de laComunidad de Madrid (DGUCMME 2008/00059/002)
DS e-Archivo
RD 27 jul. 2024