ABSTRACT

This chapter aims to illustrate, in functional terms, the ways in which corporate law can effectively curb the extraction of diversionary private benefits of control. The chapter focuses on related-party transactions as a paradigmatic example. It is argued that an effective discipline of self-dealing is not necessarily efficient. While the legal policing of expropriation of non-controlling shareholders is a necessary condition for separation of ownership and control, investor protection may be also excessive. When this is the case, legal investor protection may undermine managerial discretion and thus, also, the overall efficiency of corporate governance.