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Private benefits in corporate control transactions

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  • Poulsen, Thomas
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    Abstract

    This paper presents an analytical framework from which it can be inferred whether sellers or buyers in block transactions value private benefits highest. I am thus able to suggest an answer to the question: Are blocks of shares traded because the buyer has high security benefits, or because the buyer has high private benefits from the control rights that come with the shares? Using voting rights as the vehicle for private benefits, I find that the selling shareholders in block transactions attaches more value to private benefits than the buyers and that toeholds are insignificant for the premium paid.

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    File URL: http://www.sciencedirect.com/science/article/B6W4W-51BHHCH-1/2/8a20c562bc9f795600b9980b31879170
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 20 (2011)
    Issue (Month): 1 (January)
    Pages: 52-58

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    Handle: RePEc:eee:finana:v:20:y:2011:i:1:p:52-58

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    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Private benefits Corporate control Voting power Block transactions;

    References

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    1. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
    3. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 121-144, Spring.
    4. Jennifer Dlugosz & Rudiger Fahlenbrach & Paul Gompers & Andrew Metrick, 2004. "Large Blocks of Stock: Prevalence, Size, and Measurement," NBER Working Papers 10671, National Bureau of Economic Research, Inc.
    5. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
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    7. G. William Schwert, 1999. "Hostility in Takeovers: In the Eyes of the Beholder?," NBER Working Papers 7085, National Bureau of Economic Research, Inc.
    8. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    9. Grossman, Sanford J. & Hart, Oliver D., 1988. "One share-one vote and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 175-202, January.
    10. Harris, Milton & Raviv, Artur, 1988. "Corporate control contests and capital structure," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 55-86, January.
    11. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
    12. Bebchuk, Lucian Arye, 1994. "Efficient and Inefficient Sales of Corporate Control," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 957-93, November.
    13. Albuquerque, Rui & Schroth, Enrique, 2009. "Quantifying private benefits of control from a structural model of block trades," CEPR Discussion Papers 7358, C.E.P.R. Discussion Papers.
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    15. Barclay, Michael J. & Holderness, Clifford G., 1989. "Private benefits from control of public corporations," Journal of Financial Economics, Elsevier, vol. 25(2), pages 371-395, December.
    16. Crespi, R. & Rennboog, L., 2003. "Corporate monitoring by shareholder coalitions in the UK," Discussion Paper 19, Tilburg University, Tilburg Law and Economic Center.
    17. Zwiebel, Jeffrey, 1995. "Block Investment and Partial Benefits of Corporate Control," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 161-85, April.
    18. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
    19. Nicodano, Giovanna & Sembenelli, Alessandro, 2004. "Private benefits, block transaction premiums and ownership structure," International Review of Financial Analysis, Elsevier, vol. 13(2), pages 227-244.
    20. Gaspar, Jose-Miguel & Massa, Massimo & Matos, Pedro, 2005. "Shareholder investment horizons and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 76(1), pages 135-165, April.
    21. Renée Adams & Daniel Ferreira, 2008. "One Share-One Vote: The Empirical Evidence," Review of Finance, European Finance Association, vol. 12(1), pages 51-91.
    22. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
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