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http://ssrn.com/abstract=423506
 
 

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Private Benefits and Minority Shareholder Expropriation (or What Exactly are Private Benefits of Control?)


Olaf Ehrhardt


University of Applied Sciences Stralsund

Eric Nowak


University of Lugano; Swiss Finance Institute

June 2003

EFA 2003 Annual Conference Paper No. 809

Abstract:     
Our study examines the existence and the nature of private benefits of control. We do this by analyzing a well-understood phenomenon - initial public offerings of founding-family owned firms in Germany. Our sample includes a unique data set of 105 IPOs of family-owned firms floated from 1970 to 1991 on German stock exchanges. We focus on three research questions. First, we show that there exist substantial private benefits of control in these firms and - to our understanding for the first time - we empirically measure what the nature of these private benefits really is. Second, we verify that the separation of cash flow rights and voting rights via the issuance of dual-class shares is used to create controlling shareholder structures in order to preserve these private benefits. Thereby, we analyze the effect of different types of private benefits on dual-class adoption and subsequent control transfers. Third, we show that the market cares about private benefits of control and find a puzzling as well as significant underperformance of dual-class share IPOs.

Number of Pages in PDF File: 56

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Date posted: July 18, 2003  

Suggested Citation

Ehrhardt, Olaf and Nowak, Eric, Private Benefits and Minority Shareholder Expropriation (or What Exactly are Private Benefits of Control?) (June 2003). EFA 2003 Annual Conference Paper No. 809. Available at SSRN: http://ssrn.com/abstract=423506 or http://dx.doi.org/10.2139/ssrn.423506

Contact Information

Olaf Ehrhardt
University of Applied Sciences Stralsund ( email )
Zur Schwedenschanze 15
D-18435 Stralsund
United States
Eric Nowak (Contact Author)
University of Lugano ( email )
Via Buffi 13
CH-6900 Lugano
Switzerland
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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