The Value of Control in Private Companies

Johan Van den Cruijce (), Cynthia Van Hulle, Wouter De Maeseneire and Bettina De Ruyck
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Johan Van den Cruijce: Vlerick Business School, Gent, Belgium
Cynthia Van Hulle: KU Leuven, Leuven, Belgium
Wouter De Maeseneire: Vlerick Business School, Gent, Belgium
Bettina De Ruyck: Vlerick Business School, Gent, Belgium

Review of Law & Economics, 2025, vol. 21, issue 1, 45-76

Abstract: The controlling shareholder of a company has the potential to extract private benefits of control (PBC). In contrast to shared benefits, PBC are proceeds that accrue only to the majority shareholders. They can take a variety of forms that range from outright theft to a (covert) compensation for private costs incurred in controlling the company. It is notoriously difficult to measure PBC and the literature only provides a rough guidance based on two methods: the control premium method and the voting premium method. These two methods are based on the logic that PBC must be the reason why the controlling shareholder pays a premium over the market price for a controlling block or why voting and non-voting shares are priced differently. This paper introduces a third method to estimate the PBC. We look at the discount (compared to a baseline valuation made at the controlling level) that minority shareholders ask to invest in a company. In the context of private companies, we find a discount of 16.72 % that translates into estimated PBC of 20.08 % (premium per share). We argue that the discount for lack of control can be explained as a discount for private benefits.

Keywords: private benefits of control; discount; valuation; private companies; DLOC (search for similar items in EconPapers)
JEL-codes: G30 G34 K22 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1515/rle-2024-0047

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