Regulation and Corporate Governance in Private Companies – An Empirical Analysis: Amendment 17 to the Companies Law – A Light Unto the Nations or a Bureaucratic Burden

30 Pages Posted: 9 Oct 2014

See all articles by Keren Bar-Hava

Keren Bar-Hava

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Roi Katz

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Date Written: October 8, 2014

Abstract

Throughout the world, private firms are recommended to adopt the same corporate governance rules that are mandatory for public firms. It is unclear, however, whether the high costs associated with such voluntary adoption of corporate governance rules by private firms are justified. A precedent regulation that exists in the Israeli market provides a unique setting for addressing this question. In Israel, since 2011, private companies with public debt (“bond companies”) must act like public firms in adopting corporate governance regulations. We hand-collected a dataset of 105 daily trading Israeli bond companies spanning various industries to test the market reaction to their first-time implementation of governance rules enacted within the framework of Amendment 17 to the Companies Law. The evidence shows an economically significant positive price change of the bond market throughout the milestone of adopting the new regulation. Consistent with this evidence, we also find a positive and significant market reaction to the appointment of outside directors in those companies. Also we find decrease in the bond reaction to control transaction after this Amendment, as compared to similar transactions that were approved before the Amendment. Our findings indicate that applying corporate governance rules raise bondholders' confidence by lowering the risk of the bonds.

Keywords: Corporate Governance, Private Companies, Bond Market

JEL Classification: G38, G32, G14

Suggested Citation

Bar-Hava, Keren and Katz, Roi, Regulation and Corporate Governance in Private Companies – An Empirical Analysis: Amendment 17 to the Companies Law – A Light Unto the Nations or a Bureaucratic Burden (October 8, 2014). Available at SSRN: https://ssrn.com/abstract=2507160 or http://dx.doi.org/10.2139/ssrn.2507160

Keren Bar-Hava (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Roi Katz

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
172
Abstract Views
1,984
Rank
261,668
PlumX Metrics