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© Florencio Lopez-de-Silanes
Outline
2
© Florencio Lopez-de-Silanes
Moving beyond the Promoter’s Problem
q We have shown investor protection through the laws for IPOs and
their enforcement is a key determinant of the structure of financial
markets across countries.
Mr. James
ABC Co.
2. Legal Vulnerability:
• What legal mechanisms allow controlling investors to
expropriate from minorities?
• What makes them less vulnerable? How do they avoid court
scrutiny or liability within the realm of the law?
• Do difference in legal vulnerability explain difference in
control mechanisms and corporate structures (i.e. pyramids)?
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© Florencio Lopez-de-Silanes
Main Issues Addressed
3. Enforcement:
• What are the mechanisms available to sue across
countries?
• What is the role of disclosures and discovery?
• How are the laws actually applied by courts?
• Do some laws lead themselves to easier enforcement?
• Does this depend on the quality/structure of the existing
judicial system?
• Is there a deep connection between laws and
enforcement?
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© Florencio Lopez-de-Silanes
Progress So Far
1. We have sent all sections of the Questionnaire containing the
overview of the laws and enforcement of corporate governance
provisions and the specific cases.
2. We have received finalized answers from 95% of the firms.
3. The quality of the responses varies from country to country. We
have been in contact with some law firms in several countries asking
them for clarifications in certain areas.
4. We have started to analyzed those answers to obtain results in some
key areas
5. We will follow up with each firm with some complimentary
questions and completion memo that tries to clarify their answers as
we finalize our understanding of the structure of the processes and
key drivers. 17
© Florencio Lopez-de-Silanes
Case 2: Transaction with a
Controlling Shareholder
Mr. James
CEO 9.1%
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© Florencio Lopez-de-Silanes
Importance of Obstacles in Pursuing Suits
Against the Company: Approvals
Percentage countries who ranked item as a mayor obstacle
25%
20%
15%
10%
5%
0%
Shareholding Cost of approvals Difficulty of Interested parties Lack of
requirements satisfying influence representation of
procedural approvals minority
formalities shareholders
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© Florencio Lopez-de-Silanes
Disclosures
% of countries
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© Florencio Lopez-de-Silanes
Importance of Obstacles in Pursuing Suits
Against the Company: Disclosures
Percentage countries who ranked item as a mayor obstacle
40%
35%
30%
25%
20%
15%
10%
5%
0% No law Disclosures Narrow No Failure to No access to No
requiring laws lack definition of disclosures make information enforcement
disclosures specificity RPT of conflicts disclosures by Sh. of
of RPT of interest 22
disclosures
© Florencio Lopez-de-Silanes
Controlling Shareholders’ Civil Liability
% Countries
23
© Florencio Lopez-de-Silanes