TY - JOUR
T1 - The effect of minority veto rights on controller pay tunneling
AU - Fried, Jesse M.
AU - Kamar, Ehud
AU - Yafeh, Yishay
N1 - Publisher Copyright:
© 2020
PY - 2020/12
Y1 - 2020/12
N2 - 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.
AB - 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.
KW - Controlling shareholders
KW - Executive compensation
KW - Related-party transactions
KW - Shareholder voting
KW - Tunneling
UR - http://www.scopus.com/inward/record.url?scp=85088507482&partnerID=8YFLogxK
U2 - 10.1016/j.jfineco.2020.06.015
DO - 10.1016/j.jfineco.2020.06.015
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AN - SCOPUS:85088507482
SN - 0304-405X
VL - 138
SP - 777
EP - 788
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -