A Yellow Light for Corporate Governance

Abstract

A capital increase at a publicly traded corporation (Enersis) carried out by contributing assets valued at a market price estimated by the company’s own controlling shareholder—with the severe risk that those assets are overvalued and, as a consequence, that share prices fall across the board—yields a clear benefit to the party increasing capital through this mechanism (Endesa-España) at the expense of the remaining shareholders, who must absorb a loss equal to exactly the amount by which the assets are overpriced (institutional investors such as the AFPs (pension fund administrators) and minority investors). Continue reading...