Which Related Party Transactions Should Be Subject to Ex Ante Review? Evidence from Germany

Which Related Party Transactions Should Be Subject to Ex Ante Review? Evidence from Germany

Andreas Engert, Tim Florstedt

Series number :

Serial Number: 
440/2019

Date posted :

March 12 2019

Last revised :

February 28 2019
SSRN Share

Keywords

  • Related Party Transactions • 
  • Shareholder Rights Directive • 
  • Germany

The amended EU shareholder rights directive introduces a comprehensive regime of ex ante review for potentially conflicted transactions between listed companies and their major shareholders, downstream entities, and managers.

Such ‘related party transactions’—if considered material—will have to be evaluated in advance by the board of directors, the shareholders meeting, or the stock market. The paper offers an empirical basis for implementation in Germany and other continental European jurisdictions that lack experience with an ex ante procedural approach to related party transactions. Besides documenting ownership in and shareholdings of German listed companies, we use hand-collected data based on IAS 24 reporting of related party transactions to estimate the number of companies affected by different materiality thresholds based on accounting assets, sales, market capitalisation, and other financials. The main recommendations derived from the analysis are to use more than one single quantitative criterion, to adopt a more generous standard for transactions with downstream entities, and to abstain from imposing a specialised threshold for transactions with managers.

Authors

Real name:
Tim Florstedt