Rights Issues and their Impact on Diluting Minority Rights in Israel

Abstract

The Israeli economy is a small, centralized economy, in which most of it public traded companies have an absolute controlling core. Therefore, it is increasingly important to understand the parameters that influence the results of rights issues and whether they usually lead to a significant “expropriation” of minority rights. The literature, which describes the agency problem inherent in rights issues at length, does not include an abundance of empirical studies on the impact of rights issues on minority rights. To the best of our knowledge, this is the first study that examines the impact of rights issues, the dilution of minority holdings and various factors’ influence on the intensity of the dilution in a developed country. The significance of the main parameters and their impact on the dilution result support the accepted opinion in the economic literature, which casts a negative light on rights issues as an instrument that leads to the dilution of minority rights.