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

International Corporate Governance

ISBN: 978-1-78560-355-6, eISBN: 978-1-78560-354-9

Publication date: 1 October 2015


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.




We thank the participants of the Israeli Economic Association Meetings for their constructive comments. We are also grateful to Revital Yosef for her devoted research assistance and to the Raymond Ackerman Family Chair in Israeli Corporate Governance for its financial support. All remaining errors are our own.


Abudy, M.(. and Lauterbach, B. (2015), "Changes in Controlling Shareholders’ Holdings: Do they Entail Financial Tunneling?", International Corporate Governance (Advances in Financial Economics, Vol. 18), Emerald Group Publishing Limited, Leeds, pp. 47-63.



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