Block Trade Targets in China
44 Pages Posted: 28 Aug 2012 Last revised: 21 Feb 2013
Date Written: February 20, 2013
We examine characteristics associated with the probability of Chinese companies being block trade targets. We find that the probability decreases once a company has completed its split-share structure reform, and thereby, substantially decreases non-publicly tradable shares. Accordingly, block trade costs increased significantly after the reform. Firms with less concentrated (well-balanced) ownership structures are more likely to be block trade targets, and bidders pay low costs to obtain control rights of those companies. Finally, bidders tend to target small companies with low directors’ ownership. In China, bidders are likely to target companies that provide new controlling shareholders a low-cost opportunity to extract private benefits.
Keywords: private benefits of control, block trade, split-share structure reform, ownership concentration, China
JEL Classification: G34, G38
Suggested Citation: Suggested Citation