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ECGI RESEARCH
28 March 2015  

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See the latest research from the ECGI published in the ECGI Finance Working Paper series
Mon, 09 Mar 2015 12:26 GMT  
ECGI Finance Working Paper 447/2015

by
Hyungseok Kim, Korea Corporate Governance Service Woochan Kim, Korea University and ECGI

Submitted by
Woochan Kim
Keywords:
executive compensation, business groups, chaebols, tunneling, cash flow rights, control-ownership disparity, expropriation risk

This paper examines how executive pay is set when a firm is a business group member. Using Korea as a laboratory setting, we find that member firm’s cash compensation for its executives is positively linked to the stock performance of other member firms as well as its own. Further analyses reveal that this positive link to other members’ performance is consistent with the hypothesis of corporate resources being tunnelled from one member to another for the benefit of the controlling family. We find that this link is stronger to the performance of others that are more likely to benefit from tunneling (firms in which the controlling family has cash flow rights greater than those of the subject firm) and in firms that are more likely to suffer from tunneling (firms in which the controlling family has control-ownership disparity above the sample median).


to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp
See the latest research from the ECGI published in the ECGI Law Working Paper series
Mon, 16 Mar 2015 11:35 GMT  
ECGI Law Working Paper 287/2015

by
Martin Gelter, Fordham University and ECGI

Submitted by
Martin Gelter
Keywords:
freedom of establishment, European Company Law, European corporate law, regulatory competition, Daily Mail, Segers, Centros, Überseering, Inspire Art, Cartesio, European Court of Justice, company law directives

In consequence of the three ECJ cases in Centros (1999), Überseering (2002), and Inspire Art (2003), EU member states can no longer effectively apply the real seat theory to companies from other Member States or take other measures to avoid the circumvention of their own laws by foreign incorporation. Founders of companies can – in principle – “pick and choose” the best legal form from all Member States, a result that many policymakers and legal scholars had sought to avoid for decades. This chapter attempts to tell a short intellectual history of the debate. In the early years of the EEC, it was thought that company law would be harmonized to such a strong degree that the free movement of corporations would no longer raise any concern. When the harmonization program stalled, Member States felt justified in maintaining protectionist measures impeding free choice of corporate law. Many saw dicta in the Daily Mail case of 1988 as providing a justification for the real seat theory, whereas few observers paid attention to the Segers case of 1986, which seemed to be saying the opposite. The triad of Centros, Überseering and Inspire Art thus was a particularly disruptive surprise. The ECJ, was seen as opening the door to regulatory competition in European corporate law, and in particular to English Private Limited Companies flooding the continent. In the end, there was little “offensive” regulatory competition, since no Member State had the incentive to capture a large part of the market for incorporation. Member States did, however, engage in “defensive” regulatory competition by eliminating requirements in their laws that seemed to drive founders to the UK (even if it does not appear to be the reason why the popularity of the English Private Limited Company on the Continent ended after a few years). In consequence, the ECJ thus unwittingly nudged Member States toward a certain vision of corporate law that had never been intended by policymakers.


to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp