The Effect of Minority Veto Rights on Controller Tunneling

The Effect of Minority Veto Rights on Controller Tunneling

Jesse Fried, Ehud Kamar, Yishay Yafeh

Series number :

Serial Number: 

Date posted :

February 19 2018

Last revised :

May 06 2019
SSRN Share


  • controlling shareholders • 
  • tunneling • 
  • Corporate governance • 
  • minority shareholders • 
  • Shareholder voting • 
  • veto rights • 
  • securities regulation • 
  • corporate law • 
  • executive compensation • 
  • Related Party Transactions

A central challenge in the regulation of controlled firms is curbing controller tunneling. As independent directors and fiduciary duties are widely seen as not up to the task, a number of jurisdictions have given minority shareholders veto rights over these transactions.

To assess these rights’ efficacy, we exploit a 2011 regulatory reform in Israel that gave the minority the ability to veto pay packages of controllers and their relatives (“controller executives”). We find that the reform curbed the pay of controller executives and led some controller executives to quit their jobs, or work for free, in circumstances suggesting their pay would not have received approval. These findings suggest that minority veto rights can help curb controller tunneling.


Real name: 
Research Member
Tel Aviv University, Buchmann Faculty of Law
Real name: 
Research Member
School of Business Administration, the Hebrew University of Jerusalem