Control Premiums and the Effectiveness of Corporate Governance Systems

This article summarizes the findings of the authors' study, published recently in the Journal of Finance, that use control premiums paid in large block sales to assess the quality of corporate governance systems. The authors report significant variation in such premiums, with countries like the U.S. and U.K. showing premiums of less than 10% while premiums for countries like Brazil running in excess of 60%. The study also uses these measures to determine which institutions tend to be most effective in helping minority shareholders limit the diversion of wealth by insider or controlling shareholders. Notable among such institutional variables are better accounting standards, legal protection of minority shareholders, and law enforcement. But the authors also emphasize the importance of a number of extra‐legal factors, including more intense product market competition, diffusion of an independent press, and a high rate of tax compliance.