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Contingent CapitalShort-term Investors and the Evolution of Corporate Governance in France and Germany$
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Michel Goyer

Print publication date: 2011

Print ISBN-13: 9780199578085

Published to Oxford Scholarship Online: January 2012

DOI: 10.1093/acprof:oso/9780199578085.001.0001

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Law and Economics and Capital Mobility across Advanced Capitalist Economies

Law and Economics and Capital Mobility across Advanced Capitalist Economies

(p.84) 3 Law and Economics and Capital Mobility across Advanced Capitalist Economies
Contingent Capital

Michel Goyer

Oxford University Press

What institutional arrangements best account for the willingness of short-term investors to acquire important equity stakes in listed companies? The law and economics perspective on cross-national variations in capital mobility is grounded in principal-agent theory — the principals being dispersed shareholders that invest in companies but do not run them; and the agents being either managers or large controlling shareholders. The analytical starting point is that noncontrolling shareholders need assurance that they will get a return on their investment before departing from their financial assets. This chapter presents the institutional arrangements of legal protection for minority shareholders in French and German corporate law. The expectations are that companies with diffused ownership should be primarily targeted. The legal systems of these two economies are better at protecting the interests of noncontrolling shareholders from the value-destroying actions of managers, as compared to wealth-diverting moves by the controlling shareholder.

Keywords:   agency costs, law and economics, legal protection, minority investors, shareholder value

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