Market-Value-Maximizing Ownership Structure when Investor Protection is Weak

Beni Lauterbach and Efrat Tolkowsky

A chapter in Issues in Corporate Governance and Finance, 2007, pp 27-47 from Emerald Group Publishing Limited

Abstract: We hypothesize that in a country with lax corporate governance rules Tobin's Q is maximized when controlholders’ vote approaches the supermajority level. In this holding range, controlholders do not possess extreme power (cannot pass supermajority decisions), nor do they feel a strong temptation to loot the firm (which largely belongs to them). Using a sample of 144 Israeli firms, we find that Tobin's Q is maximized when control group vote reaches 67%. This evidence is strong when ownership structure is treated as exogenous and weak when it is considered endogenous. Other ownership structure variables do not appear to have a significant valuation effect.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afeczz:s1569-3732(07)12002-8

DOI: 10.1016/S1569-3732(07)12002-8

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