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Agency Conflicts in Public and Negotiated Transfers of Corporate Control

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Author Info

  • Mike Burkart

    (Stockholm School of Economics and CEPR,)

  • Denis Gromb

    (CEPR and M.I.T.,)

  • Fausto Panunzi

    (CEPR and Università Bocconi)

Abstract

We analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners, and show that the transaction mode is important. Negotiated block trades preserve a low level of ownership concentration, inducing more inefficient extraction of private benefits. In contrast, public acquisitions increase ownership concentration, resulting in fewer private benefits and higher firm value. Within our model, the incumbent and new controlling party prefer to trade the block because of the dispersed shareholders' free-riding behavior. We also explore the regulatory implications of this agency problem and its impact on the terms of block trades. Copyright The American Finance Association 2000.

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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 55 (2000)
Issue (Month): 2 (04)
Pages: 647-677

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Handle: RePEc:bla:jfinan:v:55:y:2000:i:2:p:647-677

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