Corporate governance and initial public offerings in Israel

Abstract

Corporate governance mechanisms: Israel is a young country based on religion. The establishment of Israel rests upon the need for a country that serves as the home of, but not limited to, Jewish people. Consequently, it is a nation of immigrants with a very diverse population. Culturally, the most distinctive features are its high uncertainty avoidance and low power distance (Hofstede, 1983), together reflected in reliance on networks, connections, and ties in spite of the existence of robust regulatory systems (La Porta, Lopez-de-Silanes, Shleifer et al., 1998). As a former colonial member of the British Empire, Israel's legal system is based mainly on common law which maximizes the role of the marketplace in sorting out economic affairs and constrains the role of the state. Nevertheless, being a young newly developed economy, Israel is still in the process of shaping an efficient market for corporate control (Ben-Zion, 2006). The specification of proper corporate behavior is quite formal and rule based, yet it was only in the second half of the last decade that these specifications were formalized and the adaptation of corporate entities still occurs. Borrowed from US-based governance mechanisms, information disclosure is highly specified and transparent. As might be expected, informal corporate governance codes are completely voluntary. Business groups are very dominant and are usually family controlled and highly diversified across different industries with a common pyramidal structure of ownership (Kosenko, 2007).