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Minority Shareholder Monitoring and German Corporate Governance

Empirical Evidence and Value Effects

Series:

Christian Thamm

This book comprises three studies on minority shareholder monitoring in Germany. Mandatory disclosure requirements have increased transparency. An analysis of the information that is publicly available is presented, regardless of the size of the target corporation. The second essay in the form of an event study pays special attention to the German supervisory board and its appointment for a fixed term. Capital markets perceive an activist effort as being more credible under certain circumstances. The study as a whole is empirical evidence for increased minority shareholder activity in Germany. The evidence presented supports the strong shareholder rights perspective. It conflicts with the weak shareholder rights view brought forward in the international literature.

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I. Introduction

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I.1. Preface Monitoring by minority shareholders is a topic that is receiving more attention in Germany – even though shareholder activism is not a completely new phenome- non. A description of an early case of shareholder activism in Germany can be found in the journals Zeitschrift für Wirtschafts- und Bankrecht (1961) and Be- triebs-Berater (1962). Even though the documentation neither states the name of the activist nor the corporation it does reveal some interesting facts on this early incident: in 1957, a minority shareholder of a German corporation at the annual meeting of that corporation asked for additional information regarding executive compensation and he also called for a higher dividend, deeming the manage- ment’s dividend proposal too low. The management denied both the disclosure of the requested information and paying a higher dividend. The activist also urged the corporation to buy back his shares at a premium. The German national supreme court Bundesgerichtshof later ruled that the shareholder’s claims both in terms of information rights and the higher dividend were legitimate (case II ZR 4/60 ruled on 23 November 1961). The corporation who acted as defendant in the case criticized the shareholder as overly aggressive and being driven by speculation purposes. An early and well-known proponent of minority shareholders’ rights was Erich Nold, originally a coal trader from Darmstadt, Germany. He became re- ceived attention as a BMW shareholder fending off a takeover bid by rival car maker Daimler-Benz in 1959 which he and other minority shareholders deemed too low....

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