Private Benefits, Block Transaction Premiums and Ownership Structure

Abstract

A simple parametric model shows that neither price premiums nor standardized block premiums measure private benefits, because they are affected by both the expected change in profits and the transfer of control effectively taking place with the block. The latter depends not only on the fractional size of the block, but on the whole distribution of shareholdings. The model is used to estimate control rents out of a sample of Italian block transactions. In this application, we measure the control transfer as the difference in the seller's (the buyer's) power index before and after the transaction. The sensitivity of private benefits to net worth, leverage and non-voting shares is examined. Finally, we show how to forecast the price of out-of-sample blocks of shares on the basis of information on company capital and ownership structure.