1.2.2.0 Introduction

The analysis so far suggests that an appropriate degree of transparency of major shareholdings can improve market efficiency, primarily by enabling investors to anticipate agency costs. This may explain why a recent survey among institutional investors shows that they consider such transparency important for their investment decisions.1 Yet another explanation is that they consider transparency important because it can play an active role in reducing those costs.2 Indeed, there is a substantial body of literature discussing mandatory disclosure as a means to address agency problems.3

Agency problems and the challenge to mitigate resulting costs form the centerpiece of corporate govemance. In Europe, the High Level Group of Company Law Experts has emphasized the potential of disclosure as a mechanism to improve corporate governance.4 The European Commission shares this view, as becomes clear, for example, from the recitals of its Recommendation on executive remuneration:

In a similar vein, one of the aims of the Transparency Directive is to "enhance effective control of share issuers" by mandating ownership disclosure.6 As we will see below, there are two mechanisme through which ownership disclosure can improve corporate govemance.