Quantifying Private Benefits of Control from a Structural Model of Block Trades

56 Pages Posted: 26 Aug 2009

See all articles by Rui A. Albuquerque

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Enrique J. Schroth

EDHEC Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2009

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 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.

Keywords: Block pricing, block trades, control transactions, deadweight loss, private benefits of control, structural estimation

JEL Classification: G12, G18, G34

Suggested Citation

Albuquerque, Rui A. and Schroth, Enrique J., Quantifying Private Benefits of Control from a Structural Model of Block Trades (July 2009). CEPR Discussion Paper No. DP7358, Available at SSRN: https://ssrn.com/abstract=1461987

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

HOME PAGE: http://sites.google.com/view/ruialbuquerque/home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Enrique J. Schroth

EDHEC Business School ( email )

393, Promenade Des Anglais
Nice, 06202
France
+33493186939 (Phone)

HOME PAGE: http://https://www.edhec.edu/en/faculty-and-researchers/schroth-enrique-phd

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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