CORPORATE PYRAMIDS IN THE ISRAELI ECONOMY:
March 2012
CORPORATE PYRAMIDS IN THE ISRAELI ECONOMY:
PROBLEMS AND POLICIES
A Report Prepared for the Committee on Increasing Competitiveness in the Economy
Lucian Bebchuk *
*
William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance,
Director of the Program on Corporate Governance, and Director of the Program on Institutional Investors,
Harvard Law School. I also serve as a Research Associate of the National Bureau of Economic Research and Fellow of the European Corporate Governance Institute. Biographical information and links to my work are available at http:/www.law.harvard.edu/faculty/bebchuk. I have written this report in my individual capacity; the opinions I have expressed herein should not be attributed to any of the institutions with which I am affiliated.
TABLE OF CONTENTS
I. Introduction and Executive Summary ......................................................................................... 1
A. The Engagement .................................................................................................................... 1
B. Executive Summary ............................................................................................................... 2
II. Pyramids in the Israeli Economy ............................................................................................... 4
III. Pyramids and Dual-Class Stock ................................................................................................ 6
IV. Agency Problems ...................................................................................................................... 7
A. The Basic Problem with Pyramids ......................................................................................... 7
B. Tunneling and Extraction of Private Benefits ........................................................................ 8
C. Problems of Expansion and Persistence
CORPORATE PYRAMIDS IN THE ISRAELI ECONOMY:
PROBLEMS AND POLICIES
A Report Prepared for the Committee on Increasing Competitiveness in the Economy
Lucian Bebchuk *
*
William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance,
Director of the Program on Corporate Governance, and Director of the Program on Institutional Investors,
Harvard Law School. I also serve as a Research Associate of the National Bureau of Economic Research and Fellow of the European Corporate Governance Institute. Biographical information and links to my work are available at http:/www.law.harvard.edu/faculty/bebchuk. I have written this report in my individual capacity; the opinions I have expressed herein should not be attributed to any of the institutions with which I am affiliated.
TABLE OF CONTENTS
I. Introduction and Executive Summary ......................................................................................... 1
A. The Engagement .................................................................................................................... 1
B. Executive Summary ............................................................................................................... 2
II. Pyramids in the Israeli Economy ............................................................................................... 4
III. Pyramids and Dual-Class Stock ................................................................................................ 6
IV. Agency Problems ...................................................................................................................... 7
A. The Basic Problem with Pyramids ......................................................................................... 7
B. Tunneling and Extraction of Private Benefits ........................................................................ 8
C. Problems of Expansion and Persistence