טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentTzameret Halal Rubin
SubjectThe Influence of Board Characteristics and Ownership
Composition on Firm Value
Evidence from Israel
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Ben-Zion Uri
Full Thesis textFull thesis text - English Version


Abstract

Considerable research has been devoted in recent years to the role of corporate governance, trying to correlate between board characteristics, ownership concentration, and firm value. In this research, analyzing the Israeli public companies from 1998 to 2004, we tried to evaluate firm value with regard to board and ownership characteristics.

This research innovation results from its quality data set of board characteristics used to examine the influence of these characteristics on firm value. Firm value was measured by Adjusted Tobin’s Q. The board members characteristics are those that determine members’ capability to monitor the firm’s executives’ decisions, and consequently, enlarging firm value.


This study is based on cross-section time series - Panel data of 1997 firm years of publicly traded Israeli firms (an average of 285 firms per year) from 1998 through 2004. It measured ownership concentration and board characteristics such as: board size, education, ‘internals’, CEO in board and other variables. During the years sampled, the new Israeli Corporate Law (1999) came into force, in February 2000. This law defined the contract between the company and its shareholders, and between the shareholders and themselves.


Concerning external board members, we found that although the Law defined the requirement of 2 outside board members their number actually declined (from 1.83 to 1.77) a lower level than in 1998, before the new law was enacted. This finding suggests that the companies tend to be less exposed to board members’ criticism that may result in damage to their firms.


We observed a high concentration ownership that even increased over the years, together with a high ratio of ‘internals’. It is more likely that owners, major shareholders positioned in board, appoint themselves to serve as executives in their firms. Moreover, in the ownership quadrate models, we found that below 35-65% of ownership concentration, the firm value increases, but behind this range firm value decreases, due to the lack of information available in the market.

It was found that large firms provide higher remuneration to their board of directors, compared to small firms (per board and per person). The remuneration was negatively correlated with firm value.
There where not significant results concerning academic degree and MBA, but we found that financial knowledge decreases firm value and law degree has a positive contribution to firm value.
It was found that different industries have different characteristics that influence board composition and ownership structure.