Quantifying private benefits of control from a structural model of block trades |
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| Authors: | Rui Albuquerque Enrique Schroth |
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| Institution: | 1. Finance and Economics Department, Boston University, School of Management, 595 Commonwealth Avenue, Boston, MA 02215, USA, and ECGI and CEPR;2. Finance Group, University of Amsterdam, Roeterstraat 11, 1018 WB Amsterdam, The Netherlands |
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| Abstract: | We study the determinants of private benefits of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb and Panunzi (2000) explicitly accounting for both block premiums and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fight a potential tender offer for the target's stock. We find evidence of large private benefits of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash flow hypothesis. |
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| Keywords: | Block pricing Control transactions Private benefits of control Structural estimation Deadweight loss |
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