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Agency Conflicts in Public and Negotiated Transfers of Corporate Control

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  • Mike Burkart
  • Denis Gromb
  • Fausto Panunzi

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.

Suggested Citation

  • Mike Burkart & Denis Gromb & Fausto Panunzi, 2000. "Agency Conflicts in Public and Negotiated Transfers of Corporate Control," Journal of Finance, American Finance Association, vol. 55(2), pages 647-677, April.
    • Handle: RePEc:bla:jfinan:v:55:y:2000:i:2:p:647-677
    DOI: 10.1111/0022-1082.00222
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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