Changes in Controlling Shareholders’ Holdings: Do they Entail Financial Tunneling?

Menachem Abudy and Beni Lauterbach

A chapter in International Corporate Governance, 2015, vol. 18, pp 47-63 from Emerald Group Publishing Limited

Abstract: We examine changes in controlling shareholder holdings, looking for evidence of financial tunneling (unfair wealth transfers from public investors to controlling shareholders). Our sample comprises yearly data during 2000–2011 on 75 large Israeli companies. We find that controlling shareholders are successful in timing the stock market – there exists a significant negative correlation between changes in the mean controlling shareholders’ equity holdings and market return. There is also some evidence that controlling shareholders increase (decrease) their holdings before years of positive (negative) excess returns in their shares. However, statistically significant mean excess returns are documented only after decreases in controlling shareholders’ holdings. Thus, we offer only limited support for the financial tunneling hypothesis.

Keywords: Controlling shareholders; financial tunneling; G32; G34 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afeczz:s1569-373220150000018002

DOI: 10.1108/S1569-373220150000018002

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