Post by Sapphire Capital on Jan 20, 2010 23:45:09 GMT 4
The Use and Abuse of Investor Suits: An Inquiry into the Dark Side of Shareholder Activism
Erik P. M. Vermeulen
Tilburg University - Center for Company Law - Department of Business Law
Dirk A. Zetzsche
Heinrich Heine University Duesseldorf - Faculty of Law - Center for Business & Corporate Law (CBC)
January 12, 2010
European Company and Financial Law Review, Vol. 7, No. 1
CBC-RPS Paper No. 1/2010
TILEC Discussion Paper No. 2010-001
Abstract:
This paper builds on the wide ranging policy discussion on shareholder activism in Europe. It seeks to define which shareholder actions are useful in reducing managerial agency costs and which could be interpreted as frivolous or abusive. In order to reveal suits that create unjustified and opportunistic shareholder litigation costs, we develop a typology, comprising of a number of Abuse Indicators: Investors' actions could be considered as abusive more often than not, if the actions are 1) filed by low tier law firms that 2) represent professional and recurrent plaintiffs; 3) which hold a small rather than significant stake in the company's stock; 4) the complaints on which the suits rely are of a boilerplate/carbon copy/formalistic nature; 5) the key motivation of the suits is driven by side benefits rather than the desire to enhance the value of the plaintiff's investment in the issuer; and 6) the suits are lacking institutional backing by shareholder associations or government agencies. Drawing on two unique datasets, which involve cases respectively in the Dutch Inquiry Proceeding ('Enquêterecht') and the Rescission Suit in Germany ('Anfechtungs - und Nichtigkeitsklage'), we show that the Dutch Inquiry Proceeding, which often results in a court-induced settlement, involve mostly 'useful' shareholder interventions to reduce managerial agency costs whereas the vast bulk of the German Rescission Suits filed between October 2005 and 2009 - prior to the reform of the law on rescission suits that has come into force in Fall 2009 - were abusive.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1535839_code357808.pdf?abstractid=1428901&mirid=2
Erik P. M. Vermeulen
Tilburg University - Center for Company Law - Department of Business Law
Dirk A. Zetzsche
Heinrich Heine University Duesseldorf - Faculty of Law - Center for Business & Corporate Law (CBC)
January 12, 2010
European Company and Financial Law Review, Vol. 7, No. 1
CBC-RPS Paper No. 1/2010
TILEC Discussion Paper No. 2010-001
Abstract:
This paper builds on the wide ranging policy discussion on shareholder activism in Europe. It seeks to define which shareholder actions are useful in reducing managerial agency costs and which could be interpreted as frivolous or abusive. In order to reveal suits that create unjustified and opportunistic shareholder litigation costs, we develop a typology, comprising of a number of Abuse Indicators: Investors' actions could be considered as abusive more often than not, if the actions are 1) filed by low tier law firms that 2) represent professional and recurrent plaintiffs; 3) which hold a small rather than significant stake in the company's stock; 4) the complaints on which the suits rely are of a boilerplate/carbon copy/formalistic nature; 5) the key motivation of the suits is driven by side benefits rather than the desire to enhance the value of the plaintiff's investment in the issuer; and 6) the suits are lacking institutional backing by shareholder associations or government agencies. Drawing on two unique datasets, which involve cases respectively in the Dutch Inquiry Proceeding ('Enquêterecht') and the Rescission Suit in Germany ('Anfechtungs - und Nichtigkeitsklage'), we show that the Dutch Inquiry Proceeding, which often results in a court-induced settlement, involve mostly 'useful' shareholder interventions to reduce managerial agency costs whereas the vast bulk of the German Rescission Suits filed between October 2005 and 2009 - prior to the reform of the law on rescission suits that has come into force in Fall 2009 - were abusive.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1535839_code357808.pdf?abstractid=1428901&mirid=2