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

  • Albuquerque, Rui
  • Schroth, Enrique

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 premia 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7358.

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Date of creation: Jul 2009
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Handle: RePEc:cpr:ceprdp:7358
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  25. 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.
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