Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-27T12:04:40.411Z Has data issue: false hasContentIssue false
  • English
  • Français

Shareholder Protection in the USA and Germany - “Law and Finance” Revisited

Published online by Cambridge University Press:  06 March 2019

Udo C Braendle

Extract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Though Company Laws of the United States and Germany have much in common, they are opposite in many important ways. While the Anglo-Saxon Law derives from Common Law, German Law has its origin in the Civil Law.

La Porta et al. are not the only ones highlighting that the quality of shareholder protection varies across different jurisdictions depending on which legal system family the jurisdiction belongs. Pistor and Siems went a step further, highlighting that variations in market systems are explainable by more fundamental factors than law, like differences in the underlying ground rules.

Type
Articles
Information
German Law Journal , Volume 7 , Issue 3 , 01 March 2006 , pp. 257 - 278
Copyright
Copyright © 2006 by German Law Journal GbR 

References

1 U.C. Braendle & J. Noll 2004, The Power of Monitoring, 5 German L. J. 11 (2004), http://www.germanlawjournal.com/article.php?id=516.Google Scholar

2 Porta, R. La, Lopez-de-Silanes, F., Shleifer, A., & Vishny, R., Law and Finance, 106 J. Pol. Econ. 1113 (1998) [hereinafter Law and Finance].Google Scholar

3 Pistor, K., Legal Ground Rules in Coordinated and Liberal Market Economies 30, (ECGI Working Paper Series in Law, 2005).Google Scholar

4 Siems, M., Legal Origins: Law & Finance v. Comparative Law?, (Duesseldorf Center for Bus. & Corp. L. Res. Paper Series No. 0023, 2006) [hereinafter Legal Origins: Law & Finance v. Comparative Law?].CrossRefGoogle Scholar

5 D. Mueller, The Corporation – Investment, Mergers, and Growth 140 (2003).Google Scholar

6 Hatzis, A.N., Having the Cake and Eating it too: Efficient Penalty Clauses in Common and Civil Contract Law, 22 Int'l Rev. of L. & Econ. 381 (2003).Google Scholar

7 Law and Finance, supra note 3; R. La Porta, F. Lopez-de-Silanes, A. Shleifer, & R. Vishny, Legal Determinants of External Finance, 52 J. Fin. 1131 (1997) [hereinafter Legal Determinants of External Finance]; R. LaPorta, F. Lopez-De-Silanes, A. Shleifer, & R. Vishny, The Quality of Government, 15 J. L. Econ. & Org. 222 (1999) [hereinafter The Quality of Government]; R. La Porta, F. Lopez-de-Silanes, A. Shleifer, & R. Vishny, Investor Protection and Corporate Governance, 58 Jo. Fin. Econ. 13 (2000) [hereinafter Investor Protection and Corporate Governance]; R. La Porta, F. Lopez-de-Silanes, A. Shleifer, & R. Vishny, Investor Protection and Corporate Valuation, 57 J. Fin. 1147 (2002) [hereinafter Investor Protection and Corporate Valuation].CrossRefGoogle Scholar

8 Roe, M.J., Political Preconditions to Separating Ownership from Corporate Control, 53 Stan. L. Rev. 539 (2000); D. Vagts, Comparative Company Law – The New Wave, in Festschrift für Jean Nicolas Druey 596 (R. Schweizer, H. Burkert, & U. Gasser eds., 2002)Google Scholar

9 The sample consists of 18 Common Law countries, 21 French Civil Law, 6 German Civil Law and 4 Scandinavian Civil Law countries.Google Scholar

10 The 357 citations in the Social Science Citation Index through May 2005 highlight the impact of this article (compared to only 23 citations of Jean Tirole's “Corporate Governance” article in Econometrica since 2001 and 58 citations of Hart and Moore's “Foundation of Incomplete Contracts” since 1999).Google Scholar

11 Law and Finance, supra note 3, at 1127.Google Scholar

12 The measure for this criterion is very strict. If the law allows non-voting stocks and/or multiple voting the criterion is not fulfilled.Google Scholar

13 The company law or Commercial Code has to grant minority shareholders either a judicial venue to challenge the decision of management or of the assembly or the right to step out of the company by requiring the company to purchase their shares when they object to certain fundamental changes, such as mergers or changes in the articles of incorporation. Law and Finance, supra note 3, at 1122.Google Scholar

14 Only a majority of shareholders can waive this right.Google Scholar

15 In addition to Germany, Austria and Switzerland as well Japan, South Korea and TaiwanGoogle Scholar

16 Concerning the quality of accounting, Scandinavia is top, Common Law perform quite well, statistically significant ahead of German Civil Law countries. Again, the French family has the weakest quality of accounting.Google Scholar

17 Law and Finance, supra note 2, at 1140.Google Scholar

18 Legal Determinants of External Finance, supra note 7.Google Scholar

19 Investor Protection and Corporate Governance, supra note 7.Google Scholar

20 Investor Protection and Corporate Valuation, supra note 7.Google Scholar

21 Wurgler, J., Financial Markets and the Allocation of Capital (Yale Int'l Center for Fin., Working Paper No. 99-08, 1999)Google Scholar

22 Beck, T., Demirgüc- Kunt, A., Maksimovic, V., Financial and Legal Institutions and Firm Size (World Bank Policy Research, Working Paper No. 2997, 2003).Google Scholar

23 Cools, S., The Real Difference in Corporate Law between the United States and Continental Europe: Distribution of Powers (Harv. L. & Econ. Discussion Paper No. 490, 2004).Google Scholar

24 Vagts, , supra note 8, at 596.Google Scholar

25 He is referring to a 2004 article of theirs where they nevertheless used the same methodology in terms of security law. See M. Siems 2005, What Does not Work in Comparing Securities Laws: A Critique on La Porta et al.'s Methodology, Int'l Co. and Com. L. Rev. 300 (2005) [hereinafter What Does not Work in Comparing Securities Laws: A Critique on La Porta et al.'s Methodology].Google Scholar

26 Baums, T. & Scott, K., Taking Shareholder Protection Seriously? Corporate Governance in the United States and Germany (Stan. L. Sch., Working Paper No. 272, 2003).Google Scholar

27 J. Coffee,The Rise of Dispersed Ownership: The Role of Law in the Separation of Ownership and Control (Center for L. & Econ. Stud., Columbia L. Sch., Working Paper No. 182, 2001).Google Scholar

28 Cools, , supra note 23.Google Scholar

29 Id.Google Scholar

30 Breandle, & Noll, , supra note 1.Google Scholar

31 Pistor, , supra note 3.Google Scholar

32 Legal Origins: Law & Finance v. Comparative Law?, supra note 4.Google Scholar

33 Pagano, M. & Volpin, P., The Political Economy of Corporate Governance, 95 Am. Econ. Rev. 1005 (2005).Google Scholar

34 Law and Finance, supra note 2, at 1122.Google Scholar

35 Aktiengesetz 1965 [AktG] [Company Law], § 12, para. 1 AktG [hereinafter AktG].Google Scholar

36 Note that until 1998 maximum voting rights were not limited to non-listed companies.Google Scholar

37 The law has changed in Germany after the enactment of a law for more control and transparency in companies (“Gesetz zur Kontrolle und Transparenz im Unternehmensbereich” (KonTraG)). Five years after this law all multiple voting rights of company expired, except a qualified majority of 75% of the share capital voted for it in an annual general meeting.Google Scholar

38 Zero points for both countries.Google Scholar

39 Those codes were established in many countries to restore investor confidence after the financial scandals of Enron, WorldCom and Parmalat (to mention the most prominent ones).Google Scholar

40 Khatchaturyan, A., The Economics of Corporate Governance Regulation in the EU (University of Siena, Working Paper 2004).Google Scholar

41 Shleifer, A. & Vishny, R., Large Shareholders and Corporate Control, 94 J. Pol. Econ. 461 (1986) [hereinafter Large Shareholders and Corporate Control]; A. Shleifer & R. Vishny, Value Maximization and the Acquisition Process, 2 J. Econ. Persp. 7 (1988) [Value Maximization and the Acquisition Process].Google Scholar

42 What shareholder democracy? Europe's unfair voting rights, The Economist, Mar. 23, 2005.Google Scholar

43 Law and Finance, supra note 2, at 1127.Google Scholar

44 The financial scandals at the beginning of the 21st century made this issue even more relevant.Google Scholar

45 Securities Exchange Commission (SEC) Rule 14a-8 (i) 1-13, for download at http://www.sec.gov/about/forms/reg14a.pdf.Google Scholar

46 Although the German Bundestag adopted a new law (Namensaktiengesetz 2000 (NaStraG)), which allows shareholders to authorize company representatives to exercise their voting rights at Annual General Meetings.Google Scholar

47 AktG, supra note 35, at § 135 para. 7.Google Scholar

48 AktG, supra note 35, at § 135 para. 4.Google Scholar

49 AktG, supra note 35, at § 135 para. 5.Google Scholar

50 H. Schmidt & J. Drukarczyk, Corporate Governance in Germany 24 (1997).Google Scholar

51 Mueller, , supra note 5, at 130.Google Scholar

52 Law and Finance, supra note 2, at 1122.Google Scholar

53 Revised Model Bus. Corp. Act § 7.05(d) (1984) [hereinafter RMBCA].Google Scholar

54 The option to require the deposit of shares has only recently (Gesetz zur Unternehmensintegrität und Modernisierung des Anfechtungsrechts 2005 (UMAG)) been replaced by the option of the requirement to ask for a registration for the general meeting.Google Scholar

55 AktG, supra note 35, at § 123 para. 3.Google Scholar

56 J. Pichler & E. Weninger, Aktienrecht in der Managerpraxis 1 (2002).Google Scholar

57 Law and Finance, supra note 2, at 1122.Google Scholar

58 H. Merkt, US-amerikanisches Gesellschaftsrecht 294 (1991). According to § 7.28 RMBCA it is up to the corporation to allow for cumulative voting in their articles or prohibit it specifically.Google Scholar

59 AktG, supra note 35, at § 101 para. 1, § 84 para. 1.Google Scholar

60 AktG, supra note 35, at § 101 para. 2.Google Scholar

61 Braendle, & Noll, , supra note 1.Google Scholar

62 Braendle, U.C., Gasser, T., & Noll, J., Corporate Governance in China – Is Economic Growth Potential Hindered by guanxi?, 110:4 Bus. & Soc'y Rev. 389 (2005).Google Scholar

63 Law and Finance, supra note 2, at 1122.Google Scholar

64 M. Becker, Verwaltungskontrolle durch Gesellschafterrechte: eine vergleichende Studie nach deutschem Verbandsrecht und dem amerikanischen Recht der Corporation 113 (1997).Google Scholar

65 S. Elsing & M. Van Alstine, US-amerikanisches Handels- und Wirtschaftsrecht 245 (1999).Google Scholar

66 It should nevertheless be mentioned that recent reforms in Germany (UMAG) have made it possible that under certain circumstances a minority of 1% of share capital may gain the right to sue the management (§ 148 AktG as amended by UMAG).Google Scholar

67 AktG, supra note 35, at § 243.Google Scholar

68 Law and Finance, supra note 2, at 1123.Google Scholar

69 AktG, supra note 35, at § 122 para. 1.Google Scholar

70 Bungert, Gesellschaftsrecht in den USA 19 (1994).Google Scholar

71 What Does not Work in Comparing Securities Laws: A Critique on La Porta et al.'s Methodology, supra note 25.Google Scholar

72 Anglo-Saxon countries like the US and UK are characterised by dispersed ownership, i.e. many shareholders only own smaller stakes in the company. Concentrated ownership, on the other hand, means that companies are owned and controlled by a few large shareholders. Many Continental European countries are representatives for the latter.Google Scholar

73 Cools, , supra note 23.Google Scholar