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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

Related research

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. Albuquerque, Rui & Schroth, Enrique, 2010. "Quantifying private benefits of control from a structural model of block trades," Journal of Financial Economics, Elsevier, vol. 96(1), pages 33-55, April.
  2. Rahul Mukherjee, 2011. "Country Portfolios with Imperfect Corporate Governance," IHEID Working Papers 08-2011, Economics Section, The Graduate Institute of International Studies.
  3. 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).
  4. Poulsen, Thomas, 2011. "Private benefits in corporate control transactions," International Review of Financial Analysis, Elsevier, vol. 20(1), pages 52-58, January.

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