Quantifying Private Benefits of Control from a Structural Model of Block Trades

54 Pages Posted: 15 Aug 2009 Last revised: 28 Nov 2013

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Enrique J. Schroth

City University London - Cass Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 2, 2009

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.

Keywords: block pricing, block trades, control transactions, deadweight loss, private benefits of control and structural estimation

JEL Classification: G12, G18, G34

Suggested Citation

Albuquerque, Rui A. and Schroth, Enrique J., Quantifying Private Benefits of Control from a Structural Model of Block Trades (July 2, 2009). Journal of Financial Economics (JFE), Vol. 96, No. 1, 2010; ECGI - Finance Working Paper No. 202/2008. Available at SSRN: https://ssrn.com/abstract=1448841 or http://dx.doi.org/10.2139/ssrn.1448841

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

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

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain

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