51 8% 11% 12% 12% 12% 8% 11% 14% 26% 26% 0% 5% 10% 15% 20% 25% 30% 2010 2014 2017 2018 2020 The Increase in the number of Companies with no Controlling Shareholders, and their Market Cap. Percentage of Companies with no Control ling Shareholders Percentage of the Market Cap of all Companies with no Controlli ng Shareholders With such gradual shift, and given the rather limited scope pf shareholder activism in Israel so far8 and the relatively minimal involvement of international institutional investors (let alone international activists, hedge funds, etc.)9, the Israeli legislator has decided to expand and bolster the corporate governance mechanisms intended to address vertical agency costs, “insider control” and management rent seeking10, which may be expressed, among others, by soft budget11,control of the board12, and earnings management13. 8 See https://insights.issgovernance.com/posts/shareholder-activism-inisrael/#:~:text=Shareholder%20activism%20is%20particularly%20buoyed,to%20call%20special%20 shareholder%20meetings.. 9 See a research paper issued by the Israeli Securities Authority: The Impact of International Institutional Shareholders on Publicly Traded Companies in Israel (2019). https://www.isa.gov.il/ GeneralResearch/179/Documents/International_investments_in_israel.pdf (in Hebrew). 10 Buchanan, J.M., Tollison, R.D., Tullock, G., & Zeckhauser, R. (1983). Toward a Theory of the Rentseeking Society. Southern Economic Journal. 48(3), 339–345. https://doi.org/10.1086/261125 [Crossref], [Web of Science ®], [Google Scholar] 11 Li, D.D. (1998). Insider control and the soft budget constraint: A simple theory. Economics Letters, 61(3), 307–311. https://doi.org/10.1016/S0165-1765(98)00151-7 [Crossref], [Web of Science ®], [Google Scholar] 12 Baran, L., & Forst, A. 2015. Disproportionate Insider Control and Board of Director Characteristics. Journal of Corporate Finance, 35(1), 62–80. https://doi.org/10.1016/j.jcorpfin.2015.08.006 [Crossref], [Web of Science ®], [Google Scholar] 13 Gopalan, R., & Jayaraman, S. (2012). Private control benefits and earnings management: Evidence from insider controlled firms. Journal of Accounting Research, 50(1), 117–157. https://doi. org/10.1111/j.1475-679X.2011.00431.x [Crossref], [Web of Science ®], [Google Scholar]
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