How much value can blockholders tunnel? Evidence from the Bulgarian mass privatization auctions |
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| Affiliation: | 1. School of Finance, Southwestern University of Finance and Economics, Wenjiang District, Chengdu, Sichuan, China;2. Accounting and Finance Department, College of Business & Public Policy, University of Alaska Anchorage, Anchorage, AK 99508-4614, USA;1. ESCP Business School, 79 Avenue de la République, 75011 Paris, France;2. Vrije University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, the Netherlands;3. The Netherlands & Swedish House of Finance, Tinbergen Institute, Stockholm, Sweden;5. Utrecht University School of Economics, Utrecht, The Netherlands & Knut Wicksell Center for Financial Studies, Lund University, Lund, Sweden;6. Knut Wicksell Center for Financial Studies, Lund University, Lund, Sweden |
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| 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 (J. law Ecorg 26 (1983) 301) view that majority-owned firms cannot persist as publicly traded corporations if the expropriating activities of controlling blockholders are not legally restricted. |
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