Private Benefits of Control: An International Comparison
I. J. Alexander Dyck
University of Toronto - Rotman School of Management
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI)
CRSP Working Paper No. 535; and Harvard PON Working Paper; AFA 2003 Washington, DC Meetings
We construct a measure of the private benefits of control in 39 countries based on 412 control transactions between 1990 and 2000. We find that the value of control ranges between -4% and +65%, with an average of 14 percent. As predicted by theory, in countries where private benefits of control are larger capital markets are less developed, ownership is more concentrated, and privatizations are less likely to take place as public offerings. We also analyze what institutions are most important in curbing these private benefits. A high degree of statutory protection of minority shareholders and high degree of law enforcement are associated with lower levels of private benefits of control, but so are a high level of diffusion of the press, a high rate of tax compliance, and a high degree of product market competition. A crude R-squared test suggests that the "non traditional" mechanisms have at least as much explanatory power as the legal ones commonly mentioned in the literature. In fact, in a multivariate analysis newspapers' circulation and tax compliance seem to be the dominating factors. We advance an explanation why this might be the case.
Number of Pages in PDF File: 59
Date posted: January 7, 2002