Finance Research Group Working Papers,
University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: This paper presents an analytical framework from which it can be inferred whether sellers or buyers in corporate control transactions value private benefits highest. I am thus able to suggest an answer to the question: Are blocks of shares traded because the buyer is a more efficient monitor with high security benefits, or because the buyer has high private benefits from the control rights that come with the shares? Using voting rights as the vehicle for private benefits, I find that the selling shareholders in block transactions attach more value to private benefits than the buyers. In tender offer transactions, the answer is that private benefits are insignificant to both sides of the transaction. As an alternative measure of the transaction premium, I calculate the abnormal return premium. This represents the stock market’s valuation of the transaction. I find that the stock market puts a positive premium on the sample transactions. Although this is not confirmed by the regression results, the market therefore expects higher future security benefits. The negative coefficients of relative voting power lend support to this conclusion, but they are not significant. I also find that inside shareholders have a very small effect on these results, but that they do attach more value to private benefits.

Keywords: Private benefits; security benefits; corporate control; block transactions; tender owners; ownership structure; influence; voting power

42 pages, March 19, 2008

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