Private Benefits, Block Transaction Premiums and Ownership Structure

Posted: 8 May 2006

See all articles by Giovanna Nicodano

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; CEPR; EGCI; Netspar

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato

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Abstract

A simple model shows that both price premiums and standardized block premiums (SBPs) are biased measures of private benefits because they do not account for the transfer of control effectively taking place with the block. This depends not only on the fractional size of the block, but on the whole distribution of shareholdings. We propose an alternative methodology to measure private benefits which makes it possible to weight the size of traded blocks on the basis of their strategic power. We apply our method to a sample of Italian block transactions and show that the traditional method underestimates control rents. The sensitivity of private benefits to net worth, leverage, and nonvoting shares is also examined. Finally, we show how to forecast the price of out-of-sample blocks of shares on the basis of information on company capital and ownership structure.

Keywords: Power index, Control rents, Ownership structure, Acquisitions, Market for corporate control

JEL Classification: C51, G12, G34, C51

Suggested Citation

Nicodano, Giovanna and Sembenelli, Alessandro, Private Benefits, Block Transaction Premiums and Ownership Structure. International Review of Financial Analysis, Vol. 13, No. 2, pp. 227-244, 2004, Available at SSRN: https://ssrn.com/abstract=899596 or http://dx.doi.org/10.2139/ssrn.212248

Giovanna Nicodano (Contact Author)

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

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HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

CEPR ( email )

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United Kingdom

EGCI ( email )

c/o the Royal Academies of Belgium
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Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy
+39 011 670 6059 (Phone)
+39 011 670 6062 (Fax)

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