54 Pages Posted: 15 Aug 2009 Last revised: 28 Nov 2013
Date Written: July 2, 2009
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: 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