Abstract

  
 

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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
July 2009

CEPR Discussion Paper No. DP7358

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 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, G34

working papers series


Date posted: August 26, 2009  

Suggested Citation

Albuquerque, Rui A. and Schroth, Enrique J., Quantifying Private Benefits of Control from a Structural Model of Block Trades (July 2009). CEPR Discussion Paper No. DP7358. Available at SSRN: http://ssrn.com/abstract=1461987

Contact Information

Rui A. Albuquerque (Contact Author)
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
HOME PAGE: http://people.bu.edu/ralbuque/
Católica-Lisbon School of Business and Economics ( email )
Caminho da Palma de Cima
Lisbon, 1649-023
Portugal
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Enrique J. Schroth
Cass Business School ( email )
London, EC2Y 8HB
Great Britain
Feedback to SSRN (Beta)


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