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Quantifying private benefits of control from a structural model of block trades

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  • Albuquerque, Rui
  • Schroth, Enrique

Abstract

We study the determinants of private benefits of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb and Panunzi (2000) explicitly accounting for both block premiums and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fight a potential tender offer for the target's stock. We find evidence of large private benefits of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash flow hypothesis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 96 (2010)
Issue (Month): 1 (April)
Pages: 33-55

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Handle: RePEc:eee:jfinec:v:96:y:2010:i:1:p:33-55

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Block pricing Control transactions Private benefits of control Structural estimation Deadweight loss;

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References

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Citations

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Cited by:
  1. Berezinets, Irina & Ilina, Yulia & Muravyev, Alexander, 2011. "CEO and Board Characteristics as Determinants of Private Benefits of Control: Evidence from the Russian Stock Exchange," IZA Discussion Papers 6256, Institute for the Study of Labor (IZA).
  2. Hubert De La Bruslerie, 2013. "Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer?," Post-Print halshs-00937543, HAL.
  3. Victor DRAGOTA & Carmen LIPARA & Radu CIOBANU, 2013. "Agency Problems and Synergistic Effects in Romania: The Determinants of the Control Premium," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(2), pages 197-219, May.
  4. 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.
  5. Strebulaev, Ilya A. & Whited, Toni M., 2012. "Dynamic Models and Structural Estimation in Corporate Finance," Foundations and Trends(R) in Finance, now publishers, vol. 6(1–2), pages 1-163, November.
  6. Rahul Mukherjee, 2011. "Country Portfolios with Imperfect Corporate Governance," IHEID Working Papers 08-2011, Economics Section, The Graduate Institute of International Studies.
  7. Poulsen, Thomas, 2011. "Private benefits in corporate control transactions," International Review of Financial Analysis, Elsevier, vol. 20(1), pages 52-58, January.
  8. Dong, Liping & Uchida, Konari & Hou, Xiaohong, 2014. "Block trade targets in China," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 188-201.
  9. de La Bruslerie, Hubert, 2013. "Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer?," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 88-107.
  10. Thomas Poulsen, 2013. "Corporate control and underinvestment," Journal of Management and Governance, Springer, vol. 17(1), pages 131-155, February.
  11. Taylor, Lucian A., 2013. "CEO wage dynamics: Estimates from a learning model," Journal of Financial Economics, Elsevier, vol. 108(1), pages 79-98.

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