Conflicts of Interest and Related-Party Transactions

Abstract

Although accounting scandals in the United States of America and Europe highlighted many cases in which the executives or controlling shareholders used transactions between related parties to manipulate results, diverting resources from the company and obtaining private profit; the true impact of the failure of the fiduciary duties, is not very well known in the Latin-American business culture. Over the past 30 years, many measures have been implemented to promote investment and direct financing through the stock market. To become a significant source of financing, securities markets need to lower-costs without neglecting the level of legal protection of minority shareholders, creditors, and investors due to the problems of asymmetric information, moral hazard, and adverse selection that the regulatory system and its enforcement cannot eliminate. Therefore, this study is considered important for countries with limited financial resources such as Argentina and Peru which corporate structure has a high concentration of shareholders in the ownership of companies, widespread use of pyramid structures with a transparent identification of the main shareholder, and the presence of emerging capital markets trying to grow with the participation of institutional investors. For this reason, analyzing the most significant publications on the subject and using the corporate information of securities listed on the Stock Exchange of Lima, this thesis seeks to highlight the related-party transactions that can cause damage to minority shareholders and investors in Peru where the corporate structure, institutions, and the weakness of the legal system constitute a disadvantage. Finally, using techniques of Economic Analysis of Law, this thesis assesses the adequacy of the legal scheme applicable to related-party transactions in Peru, while considering the evolution of comparative law and its implementation in Argentina and USA.