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The quality of corporate governance, i.e. the effectiveness of institutions that contain agency costs, is a key component of asset allocation. In countries characterized by concentrated ownership, minority shareholder expropriation, also known as tunneling, is the main concern from the perspective of outside investors. Tunneling can be the outcome of a number of expropriation techniques. A common way to extract value from the controlled corporation is for the dominant shareholder to engage in transactions with it at favourable terms (so-called related party transactions or, hereafter, ‘RPTs’).

While direct evidence of value diversion via tunneling is obviously hard to obtain, widespread use of related party transactions has been observed for example in China and South Korea (also as a tool to transfer wealth from one generation of controllers to the next in avoidance of inheritance taxes), has been reported for post-privatization Russia (Black, Kraakman and Tarassova 2000) and Italy (Bianchi et al. 2014). Anecdotal evidence of value extraction via RPTs also exists with regard to the US (Atanasov et al. 2011) and foreign companies listed on the London Stock Exchange (Barker and Chiu 2014).

Informed investors are aware of the risk of tunneling: they determine their reservation price accordingly and will thus discount the share price at which they are willing to invest. In practice, however, the probability and scope of the looming expropriation are hard to gauge ex ante and therefore the appropriate discount is difficult to establish, leading to noisy estimates. In addition, even with perfect pricing, from the perspective of social planners in individual countries, tunneling, by raising firms’ cost of capital, makes equity markets less vibrant, reduces funding opportunities for businesses and ultimately impairs growth.

That explains the focus on tunneling, and often more specifically on related party transactions, by international economic organizations (such as the World Bank and the OECD) and national policymakers (Enriques 2015). As a consequence, in the last two decades, policymakers around the world have focused their attention on RPTs in their attempt to encourage outside (and often foreign) investment. Company and securities law reforms tackling RPTs have been enacted in the US, the UK, Germany, Italy, India, Israel, and many other countries.

ECGI, together with University of Oxford, Faculty of Law and SAFE House of Finance, Frankfurt, are collaborating on a project on the topic of Related Party Transactions. This project will bring together top legal and finance scholars to reflect upon the role of dominant shareholders in listed firms, tunneling control as a key component to enhance capital market development, and the content and effectiveness of the reform efforts undertaken in various jurisdictions. The common denominator of the contributions will be the functional perspective: the aim of collecting pieces that may help academics as well as policymakers, practitioners, and market players understand whether and how the law on tunneling does or may act as a constraint on such behaviour in individual jurisdictions, whether lessons can be learnt from individual countries’ experiences or from a comparison thereof, and what the interactions are between laws aiming to tackle tunneling and other institutional features, in the broadest sense, of a given market.

Some of the contributions will have a geographic focus (e.g. describing a given jurisdiction’s regime on related party transactions and how it could be improved to reduce the incidence of tunneling). Others will be comparative, still others will follow a theoretical or empirical approach.

ECGI will continue to track the progress of this project and related developments. Additional resources will be made available through these pages.

Queries and project funding proposals should be directed to Prof. Tobias Tröger (



Academic Papers:

Black, Bernard S. and Kraakman, Reinier H. and Tarassova, Anna, Russian Privatization and Corporate Governance: What Went Wrong?. As published in Stanford Law Review, Vol. 52, pp. 1731-1808, 2000.. Available at SSRN: or

Bianchi, Marcello and Enriques, Luca and Milic, Mateja, Enforcing Rules on Related Party Transactions in Italy: One Securities Regulator's Challenge (May 31, 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 409/2018. Available at SSRN: or

Atanasov, Vladimir A. and Black, Bernard S. and Ciccotello, Conrad S., Law and Tunneling (December 8, 2011). ECGI - Law Working Paper No. 178/2011; Journal of Corporation Law, Vol. 37, pp. 1-49, 2011; ECGI - Law Working Paper No. 178/2011; Northwestern Law & Econ Research Paper 09-35; U of Texas Law, Law and Econ Research Paper 158. Available at SSRN:

Chiu, Iris H-Y and Barker, Roger, Protecting Minority Shareholders in Blockholder-Controlled Companies – Evaluating the UK’s Enhanced Listing Regime in Comparison with Investor Protection Regimes in New York and Hong Kong (July 22, 2014). Available at SSRN: or

Enriques, Luca, Related Party Transactions: Policy Options and Real-World Challenges (With a Critique of the European Commission Proposal) (October 3, 2014). European Corporate Governance Institute (ECGI) - Law Working Paper No. 267/2014. Available at SSRN: or


Policy papers, reports, viewpoints and speeches:

ICGN Viewpoint Related Party Transactions: How to ensure adequate protection of minority shareholder rights (June 2018)

Blog posts: 





Prof. Tobias Tröger


Working Papers

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