The Value of Corporate Votes and Control Benefits: A Cross-country Analysis

Abstract

This paper measures corporate control benefits - the value that dominant vote-holders expropriate from a controlled company to the detriment of other shareholders. Control benefits are extracted from the total value of the votes in the control block, based on a baseline control contest model in the case of a dual-class firm. The study is based on a sample of 661 dual-class firms in 18 countries, using data for 1997. The determinants of control benefits are then explored in a consistent fashion across countries. We use measures of the general strictness of the legal environment, an index of takeover regulations, and a measure of power-concentrating Corporate Charter provisions, the probability of a control contest, and costs of holding the control block. We control for differences in the security value of the share classes, e.g. differences in dividend payments and liquidity. The value of control, or equivalently the total value of votes in the control block, ranges from about 0% in Denmark to 50% of firm market value in Mexico. Legal environment variables explain 75% of the cross-country variation in the value of control benefits.