The effect of minority veto rights on controller pay tunneling

Jesse M. Fried*, Ehud Kamar, Yishay Yafeh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

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.

Original languageEnglish
Pages (from-to)777-788
Number of pages12
JournalJournal of Financial Economics
Volume138
Issue number3
DOIs
StatePublished - Dec 2020

Funding

FundersFunder number
American Law and Economics Association
Bar-Ilan University
Krueger Center
NYU/Tel Aviv University
Tel Aviv Stock Exchange
Università degli Studi di Siena
Université de Lille
University of Oxford
United States-Israel Binational Science Foundation2012/071
Seoul National University
Universität Wien
Hebrew University of Jerusalem
University of Toronto
Tel Aviv University
Universität Hamburg
Università Bocconi
Universität Zürich
National Taiwan University

    Keywords

    • Controlling shareholders
    • Executive compensation
    • Related-party transactions
    • Shareholder voting
    • Tunneling

    Fingerprint

    Dive into the research topics of 'The effect of minority veto rights on controller pay tunneling'. Together they form a unique fingerprint.

    Cite this