Competition and Private Benefits of Control

Abstract

This paper investigates the impact of competition on private benefits of control (PBC). To test for the effect of competition on private benefits, we use two indexes that measure the level of product and input market anti-competitive regulations. We estimate PBC using the voting premia between shares with differential voting rights. Using a panel dataset of 586 firms in 16 countries, our main findings are three. First, within-country increases in the intensity of competition lead to lower estimates of private benefits of control. Second, competition significantly reduces the dispersion in private benefits. Third, the reduction in the level and dispersion of PBC that result from competition are particularly prominent in weak-rule-of-law countries, in manufacturing industries and in less-profitable firms. Overall, our results suggest that product market competition can help in curbing private benefits of control.

Keywords: Private benefits of control, product market competition, governance

JEL Classification: G30, G15, D40