Determinants of the Block Premium and of Private Benefits of Control

Rui Albuquerque and Enrique Schroth ()

No 6742, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Note: A substantially revised version of this paper has been published as CEPR DP7358, "Quantifying private benefits of control from a structural model of block trades." Please refer to DP7358 for the most up-to-date version. 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 dealing with the existence of both block premia and block discounts in the data. We find evidence that the occurrence of block premia and block discounts depends on the controlling block holder's ability to fight a potential tender offer for the target's stock. Private benefits represent 3% of the target firm's stock market value. Private benefits increase with the target's cash holdings and decrease with its short term debt providing evidence in favour of Jensen's free cash flow hypothesis. A counterfactual policy evaluation of the Mandatory Bid Rule suggests that it fails to add value to shareholders because it fails to prevent welfare decreasing transactions and, by forcing inefficient tender offers, it deters welfare increasing transactions.

Keywords: Block pricing; Block trades; Control transactions; Mandatory bid rule; Market rule; Private benefits of control; Structural estimation (search for similar items in EconPapers)
JEL-codes: G12 G18 G34 (search for similar items in EconPapers)
Date: 2008-03
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP6742 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: DETERMINANTS OF THE BLOCK PREMIUM AND OF PRIVATE BENEFITS OF CONTROL (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6742

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6742

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().