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Justifications for minority co-owned groups and their corporate law implications.
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- Author(s): Enriques, Luca; Gilotta, Sergio
- Source:
Theoretical Inquiries in Law; Jun2024, Vol. 25 Issue 1, p141-160, 20p- Subject Terms:
- Source:
- Additional Information
- Abstract: Corporate groups with listed subsidiaries are common around the world, despite the risks they pose to minority shareholders. Shaping a firm as a web of formally independent, minority-co-owned legal entities facilitates controllers' diversion of corporate wealth (tunnelling) via intragroup transactions and other nontransactional techniques. This Article problematizes the conventional view of groups as tunnelling-facilitating infrastructures by arguing that organizing as a group with listed subsidiaries (a minority co-owned group) may create value for all shareholders. Organizing as a minority co-owned group may increase transparency, improve performance thanks to the possibility of using stock options for subsidiaries' managers, allow for the circumvention of inefficient restrictions to dual-class shares, facilitate cross-border acquisitions, and be a second-best solution in the presence of path dependence issues preventing firms from moving from concentrated to dispersed ownership. If these are the economic rationales for having minority co-owned groups, how should the latter be regulated? In continental Europe special corporate law rules centred on a relaxation of directors' fiduciary duties within minority co-owned groups, with a view to facilitating intragroup transactions, are increasingly popular among academics and policymakers. These rules, in turn, are bound to blur the separation between the minority co-owned listed entity as an independently managed firm and other members of the corporate group. However, because the rationales for minority co-owned groups presuppose the opposite, namely a clear and transparent separation between the minority co-owned listed entity and the group, our conclusion is that stringent self-dealing rules (or at least no less stringent rules than those established for conflicted transactions other than intragroup transactions) are required for minority co-owned groups to create value for all shareholders rather than merely facilitate tunnelling. [ABSTRACT FROM AUTHOR]
- Abstract: Copyright of Theoretical Inquiries in Law is the property of De Gruyter and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)
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