The slate-vote system as a mechanism to mitigate the risk of self-dealing transactions via RPTs

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Abstract

Many corporate scandals shed new light on the risks associated with related party transaction (RPT), increasing the suspicious attitude and the negative perceptions that generally accompany these operations. In particular, in a high ownership concentration setting – as the Italian market – RPTs could be used by majority shareholders to tunnel resources, stimulating an undue appropriation of private benefits of control to the detriment of minority shareholders (self-dealing transactions). This paper contributes to the existing literature, analysing the slate-vote system’s impact on the risks related to RPTs that pursue opportunistic purposes. The study aims to investigate the role that this corporate governance mechanism plays on the strictness of procedures and transparency of RPT disclosure, in the Italian institutional setting. More specifically, it identifies the anti-tunneling tools to protect minority shareholders aimed to prevent harmful transactions (ex-ante screening mechanism) and monitor the quality of RPT information conveyed to the market (ex-post screening mechanism). The analysis of an explanatory Italian case study offers an opportunity to gather evidence on the costs of these transactions and the role of minorities in fairness and transparency of the RPT procedure.

Keywords: Self-Dealing Transactions, Non-Controlling Shareholders, Minority Directors, Tunneling, Slate-Vote System, Related Party Transaction

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G30, G34, K220, K229, L510

Received: 17.07.2020
Accepted: 28.09.2020
Published online: 29.09.2020

How to cite this paper: Cappellieri, F. (2020). The slate-vote system as a mechanism to mitigate the risk of self-dealing transactions via RPTs. Journal of Governance & Regulation, 9(3), 122-131. https://doi.org/10.22495/jgrv9i3art9