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Private Benefits of Control: An International Comparison

59 Pages Posted: 7 Jan 2002  

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: December 2001

Abstract

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.

Suggested Citation

Dyck, I. J. Alexander and Zingales, Luigi, Private Benefits of Control: An International Comparison (December 2001). CRSP Working Paper No. 535; and Harvard PON Working Paper; AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=296107 or http://dx.doi.org/10.2139/ssrn.296107

I.J. Alexander Dyck

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S 3E6
Canada
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Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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