Quantifying Private Benefits of Control from a Structural Model of Block Trades
Rui A. Albuquerque
Boston University - School of Management; Católica-Lisbon School of Business and Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Enrique J. Schroth
Cass Business School
CEPR Discussion Paper No. DP7358
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.
Number of Pages in PDF File: 56
Keywords: Block pricing, block trades, control transactions, deadweight loss, private benefits of control, structural estimation
JEL Classification: G12, G18, G34working papers series
Date posted: August 26, 2009
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