Control Premium and Corporate Regulatory Changes: Theory and Evidence

Sonia P. Jurfest; Ricardo D. Paredes; Julio Riutort

doi:10.1111/deve.12076

Control Premium and Corporate Regulatory Changes: Theory and Evidence

Sonia P. Jurfest, Ricardo D. Paredes, Julio Riutort

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

We propose a model to estimate the private benefits of control in control transfer transactions for a broad range of regulatory environments, from private negotiations to mandatory tender offers. The Barclay and Holderness' and Dyck and Zingales' Block Premium models are nested as special cases. With corporate control transfer regulation around the world moving from the Market Rule to the Equal Opportunity Rule, our theoretical model is a flexible tool for empirical studies. We apply our model to study the effect of the implementation of Chile's Tender Offer Law in 2000 and find that control premiums fell significantly. This drop is statistically unrelated to the targets' affiliation to an economic group. Our results suggest that improved corporate governance practices and the Equal Opportunity Rule alignment effect reduced the scope for extraction of private benefits of control.

Original language	English
Pages (from-to)	159-187
Number of pages	29
Journal	Developing Economies
Volume	53
Issue number	3
DOIs	https://doi.org/10.1111/deve.12076
State	Published - 1 Sep 2015
Externally published	Yes

Keywords

Control premium
Corporate regulation
Equal opportunity rule
Market rule
Private benefits
Takeover law

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10.1111/deve.12076

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title = "Control Premium and Corporate Regulatory Changes: Theory and Evidence",

abstract = "We propose a model to estimate the private benefits of control in control transfer transactions for a broad range of regulatory environments, from private negotiations to mandatory tender offers. The Barclay and Holderness' and Dyck and Zingales' Block Premium models are nested as special cases. With corporate control transfer regulation around the world moving from the Market Rule to the Equal Opportunity Rule, our theoretical model is a flexible tool for empirical studies. We apply our model to study the effect of the implementation of Chile's Tender Offer Law in 2000 and find that control premiums fell significantly. This drop is statistically unrelated to the targets' affiliation to an economic group. Our results suggest that improved corporate governance practices and the Equal Opportunity Rule alignment effect reduced the scope for extraction of private benefits of control.",

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AU - Riutort, Julio

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AB - We propose a model to estimate the private benefits of control in control transfer transactions for a broad range of regulatory environments, from private negotiations to mandatory tender offers. The Barclay and Holderness' and Dyck and Zingales' Block Premium models are nested as special cases. With corporate control transfer regulation around the world moving from the Market Rule to the Equal Opportunity Rule, our theoretical model is a flexible tool for empirical studies. We apply our model to study the effect of the implementation of Chile's Tender Offer Law in 2000 and find that control premiums fell significantly. This drop is statistically unrelated to the targets' affiliation to an economic group. Our results suggest that improved corporate governance practices and the Equal Opportunity Rule alignment effect reduced the scope for extraction of private benefits of control.

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Control Premium and Corporate Regulatory Changes: Theory and Evidence

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Keywords

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