Regulation and Self-Regulation of Related Party Transactions in Italy. An Empirical Analysis

Bianchi, Marcello; Ciavarella, Angela; Enriques, Luca; Novembre, Valerio; Signoretti, Rossella

doi:10.2139/ssrn.2383237

Cited by 9 publications

(14 citation statements)

References 34 publications

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“…Our results also show that the quality of legal protection is highest in public utilities companies because these firms have a mean value equal to 2.27. This value is higher than that of the financial companies, and this result is also in strong contrast with the evidence provided by Bianchi et al (). In 2010, the mean value of the RPT value for financial services companies was 2.46; meanwhile, after 7 years, this value has decreased to 1.72.…”

Section: Resultscontrasting

confidence: 95%

“…Our analysis reveals that the RPT Indicator has a mean (median) value of 1.89 (2.00) that demonstrates a low level of compliance with the Code's recommendations. The mean value is also lower than the mean value (2.11) from 2010 (Bianchi et al, ), which shows a worsening of legal protection for the minority shareholders. Therefore, the lack of mandate to be compliant with the Code's best practices encourages the majority shareholders to be involved in tunneling.…”

Section: Resultsmentioning

confidence: 78%

“…This paper uses a quantitative method (Bell et al ; Blumberg, Cooper, & Schindler, ; Maylor & Blackmon, ) to evaluate the quality of legal protection of minority shareholders in Italy. We used the Bianchi et al, () RPT Indicator to measure the level of effective compliance by Italian listed companies with the Regulation. Additionally, we carry out an OLS regression analysis to determine the effect of several corporate governance drivers on the value of the RPT Indicator, and we assume that there is transparency (Massaro, Dumay, & Bagnoli, ).…”

Section: Methodsmentioning

confidence: 99%

“…Assonime reports annually on formal compliance with the Code, and it revealed a widely spread adhesion to it by (close to) all Italian listed companies. However, several studies (Bava & Di Trana, ; Bianchi et al, ; Bianchi, Ciavarella, Novembre, & Signoretti, ) found that Italian listed companies are not effectively compliant with the Code's recommendations, showing a gap between formal and effective compliance. Bava and Di Trana (, p. 144) found that the Regulation increased the amount of information disclosed to the market, but “the percentage of their magnitude on the gross amount is worryingly low.” Bianchi et al (, p.108) stated that “the adoption by Italian companies of best practices for dealing with potential conflicts of interests in RPTs is markedly weaker than what is formally declared in the reports”.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

See 3 more Smart Citations

Exploring sustainable governance: Compliance with the Italian related party transactions regulation for the legal protection of minority shareholders

Maglio

Rey

Agliata

et al. 2019

Corp Soc Responsibility Env

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Regarding the development of sustainable governance systems, many regulators have issued and developed self-regulatory codes defining the characteristics and ideal features of government models. The adoption of codes of good governance could serve as a mechanism to increase the level of legal protection for minority shareholders.Thus, this paper aims to measure the effective compliance by Italian listed companies with the Italian Code's recommendations on related party transactions and to assess the level of legal protection for minority shareholders in the Italian stock market.Using a quantitative method, our findings suggest that FTSE MIB companies are effectively compliant and that public utilities companies are as well. We also carried out an ordinary least squares (OLS) regression and found that companies with a higher market value and a greater presence of independent and non-executive directors assure a higher level of compliance. We observed that widely held firms have a positive effect on the level of legal protection for the minority shareholders. Our paper contributes to enriching the sustainable governance models, and it is directed to academic and practical communities.

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Section: Resultscontrasting

confidence: 95%

Section: Resultsmentioning

confidence: 78%

Section: Methodsmentioning

confidence: 99%

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

See 2 more Smart Citations

Exploring sustainable governance: Compliance with the Italian related party transactions regulation for the legal protection of minority shareholders

Maglio

Rey

Agliata

et al. 2019

Corp Soc Responsibility Env

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“…As mentioned above, according to our view, minority-elected directors should have a positive effect on board monitoring ability. Bianchi, Ciavarella, Enriques, Novembre & Signoretti (2014) find that companies where there is at least one minority-elected director (elected by institutional investors) have stricter regulations regarding related-party transactions. This shows that there is an enhanced attention of boards which include minority-elected directors towards transaction that can be used to expropriate minority shareholders.…”

Section: The Italian Experience In Practice: the Effects On Board Momentioning

confidence: 90%

Enhancing Board Monitoring Tasks: The Effect of Minority-Elected Directors

Masi¹,

Zorzi²

2020

IJBM

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In companies with a controlling shareholder the agency relationship between controlling shareholders and minority shareholders poses significant issue. Managers may pursue, rather than the interests of the company as a whole, the interest of the controlling shareholder. When there is a controlling shareholder, independent directors may not prove sufficient to monitor the management behaviour, given that they are ultimately appointed by the same controlling shareholder whose possible opportunistic behaviour they are meant to constrain. Therefore, minority shareholders may be given appointment rights to the board: directors elected by minority shareholders may work as a corporate governance mechanism that fosters the board’s willingness and ability to monitor managers’ behaviour, on the assumption that managers are appointed by the controlling shareholder. This paper examines empirically whether having a minority-elected director on corporate boards increases the ability of the board to monitor management behaviour. Using a sample of the largest listed Italian companies in years 2008-2017, we find that minority-elected directors have a positive and statistically significant effect on board monitoring tasks. We also document that this effect is higher when they are elected by institutional investors. Our results have important implications for policy makers and, more generally, corporate governance best practice in all contexts in which companies have a concentrated ownership structure.

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Blinded by ‘Fairness’: Why We Need (Strong) Procedural Safeguards in Screening Self-Dealing and Obtaining a Fair Price Is Not the Answer

Gözlügöl

2022

Eur Bus Org Law Rev

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Ex post court review of related party transactions (RPTs) is one of the main mechanisms to deal with the problem of value diversion in public companies via self-dealing and is extensively made use of in Delaware and until relatively recently in most continental European countries. Such court review has also become to be known as the ‘fairness test’ whose contours may change depending on the jurisdiction and contexts in which it is applied. This study takes issue with the court review of actualized transactions under certain standards from two different perspectives. Firstly, it is argued that the behavioral insights derived from studies by behavioral economists and psychologists suggest that a legal regime that solely depends on the court review of substantive merits of RPTs without any (strong) procedural safeguard may fail to create a robust regime against value diversion. Secondly, acknowledging that the court review of substantive merits of RPTs may be inevitable in some cases, the study then turns its attention to the fairness test itself that compares the terms of an RPT to an arm’s length transaction, and argues that such an objective test fails to fully prevent value diversion. Accordingly, a recalibration of the test and a new framework are proposed.

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Regulation and Self-Regulation of Related Party Transactions in Italy. An Empirical Analysis

Cited by 9 publications

References 34 publications

Exploring sustainable governance: Compliance with the Italian related party transactions regulation for the legal protection of minority shareholders

Exploring sustainable governance: Compliance with the Italian related party transactions regulation for the legal protection of minority shareholders

Enhancing Board Monitoring Tasks: The Effect of Minority-Elected Directors

Blinded by ‘Fairness’: Why We Need (Strong) Procedural Safeguards in Screening Self-Dealing and Obtaining a Fair Price Is Not the Answer

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