Quantifying private benefits of control from a structural model of block trades

Quantifying private benefits of control from a structural model of block trades

Rui Albuquerque, Enrique Schroth

Series number :

Serial Number: 
202/2008

Date posted :

July 01 2009

Last revised :

August 20 2009
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Keywords

  • Block pricing • 
  • block trades • 
  • control transactions • 
  • private benefits of control • 
  • structural estimation • 
  • deadweight loss

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 premia 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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Published in

Published in: 
Publication Title: 
Journal of Financial Economics
Description: 
Vol. 96, No. 1, 2010

Authors

Real name:
Enrique Schroth