The effect of minority veto rights on controller pay tunneling

Jesse M. Fried, Ehud Kamar and Yishay Yafeh

Journal of Financial Economics, 2020, vol. 138, issue 3, 777-788

Abstract: A central challenge in the regulation of controlled firms is curbing rent extraction by controllers. As independent directors and fiduciary duties are often insufficient, some jurisdictions give minority shareholders veto rights over related-party transactions. To assess these rights’ effectiveness, we exploit a 2011 Israeli reform that gave minority shareholders veto rights over related-party transactions, including the pay of controllers and their relatives (“controller executives”). We find that the reform curbed controller-executive pay and led some controller executives to resign or go with little or no pay in circumstances suggesting their pay would be rejected. These findings suggest that minority veto rights can be an effective corporate governance tool.

Keywords: Controlling shareholders; Executive compensation; Related-party transactions; Shareholder voting; Tunneling (search for similar items in EconPapers)
JEL-codes: G34 G38 J33 J38 K22 M12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:138:y:2020:i:3:p:777-788

DOI: 10.1016/j.jfineco.2020.06.015

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