Working Paper: NBER ID: w8711
Authors: Alexander Dyck; Luigi Zingales
Abstract: We construct a measure of the private benefits of control in 39 countries based on 412 control transactions between 1990 and 2000. We find that the value of control ranges between 4% and +65%, with an average of 14 percent. 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 analyze 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: private benefits of control; corporate governance; financial markets
JEL Codes: G30; G15; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| legal protections for minority shareholders (G34) | private benefits of control (D61) |
| law enforcement (K40) | private benefits of control (D61) |
| press diffusion (Y60) | private benefits of control (D61) |
| tax compliance (H26) | private benefits of control (D61) |
| product market competition (L13) | private benefits of control (D61) |
| private benefits of control (D61) | ratio of external market capitalization to GNP (F31) |
| private benefits of control (D61) | equity held by noncontrolling shareholders (G39) |
| private benefits of control (D61) | privatized companies sold privately rather than publicly (L33) |