Working Paper: CEPR ID: DP7358
Authors: Rui Albuquerque; Enrique Schroth
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 Codes: G12; G18; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private benefits of control (D61) | block premium (Y60) |
| block premium (Y60) | effectiveness of block owners in opposing tender offers (G34) |
| private benefits of control (D61) | deadweight losses (H21) |
| identity of blockholders (G34) | firm value (G32) |
| cash holdings relative to total assets (G19) | private benefits (J32) |
| short-term debt (H63) | private benefits (J32) |
| acquirers (G34) | overpayment in block trades (G35) |