How Much Value Can Blockholders Tunnel? Evidence from the Bulgarian Mass Privatization Auctions

63 Pages Posted: 20 Sep 2001 Last revised: 21 Mar 2012

See all articles by Vladimir A. Atanasov

Vladimir A. Atanasov

William and Mary - Raymond A. Mason School of Business

Date Written: April 28, 2002

Abstract

This study examines the emergence of the Bulgarian stock market and the role of controlling blockholders. A new approach using mass privatization auction data measures the premium for control and demonstrates that, in the absence of legal constraints, majority owners extract more than 85% of firm value as private benefits of control. Institutional investors form portfolios of predominantly controlling positions or participate in majority coalitions. Ownership stakes cluster at 51%. After the privatized companies begin trading on the Bulgarian Stock Exchange, majority-owned firms trade at 40-60% discounts. Overall, the results support the Fama and Jensen (1983) view that majority-owned firms cannot persist as publicly traded corporations if the expropriating activities of controlling blockholders are not legally restricted.

Keywords: private benefits of control, large shareholders, coalition formation

JEL Classification: G32, G34, D44, L33

Suggested Citation

Atanasov, Vladimir A., How Much Value Can Blockholders Tunnel? Evidence from the Bulgarian Mass Privatization Auctions (April 28, 2002). Journal of Financial Economics (JFE), Vol. 76, 2005; Tuck-JQFA Contemporary Corporate Governance Issues II Conference. Available at SSRN: https://ssrn.com/abstract=283601 or http://dx.doi.org/10.2139/ssrn.283601

Vladimir A. Atanasov (Contact Author)

William and Mary - Raymond A. Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

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