Working Paper: CEPR ID: DP3177
Authors: Alexander Dyck; Luigi Zingales
Abstract: Based on 412 control transactions between 1990 and 2000 we construct a measure of the private benefits of control in 39 countries. We find that the value of control ranges between ?4% and +65%, with an average of 14%. As predicted by theory, in countries where private benefits of control are larger capital markets are less developed, ownership is more concentrated, and privatizations are less likely to take place as public offerings. We also analyse what institutions are most important in curbing these private benefits. A high degree of statutory protection of minority shareholders and high degree of law enforcement are associated with lower levels of private benefits of control, but so are a high level of diffusion of the press, a high rate of tax compliance, and a high degree of product market competition. A crude R-squared test suggests that the ?non traditional? mechanisms have at least as much explanatory power as the legal ones commonly mentioned in the literature. In fact, in a multivariate analysis newspapers? circulation and tax compliance seem to be the dominating factors. We advance an explanation why this might be the case.
Keywords: financial development; investor protection; private benefits
JEL Codes: G15; G30; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High degree of statutory protection for minority shareholders and law enforcement (G38) | Lower private benefits (J32) |
| Diffusion of the press (P19) | Lower private benefits (J32) |
| Tax compliance (H26) | Lower private benefits (J32) |
| Product market competition (L13) | Lower private benefits (J32) |
| Strong legal protections and law enforcement (P14) | Lower private benefits (J32) |
| One standard deviation increase in private benefits (D69) | 48% reduction in the ratio of external market capitalization of equity to GDP (F65) |
| Increased private benefits (H49) | Discouragement of public offerings (G24) |
| Larger private benefits (D69) | 52% reduction in the number of listed companies not tightly controlled (G34) |
| Larger private benefits (D69) | 36% increase in privatized companies sold through private negotiations (G34) |