Articles

Agency conflicts in public and negotiated transfers of corporate control

M. BURKART, D. GROMB, F. PANUNZI

The Journal of Finance

April 2000, vol. 55, n°2, pp.647-677

Departments: GREGHEC (CNRS)

Keywords: block trade ; Corporate Governance ; Ownership structure ; Small shareholders ; Takeover ; Theory


We analyze control transfers in firms with a dominant minority blockholder andotherwise dispersed owners, and show that the transaction mode is important.Negotiated block trades preserve a low level of ownership concentration, inducingmore inefficient extraction of private benefits. In contrast, public acquisitions increaseownership concentration, resulting in fewer private benefits and higher firmvalue. Within our model, the incumbent and new controlling party prefer to tradethe block because of the dispersed shareholders’ free-riding behavior. We also explorethe regulatory implications of this agency problem and its impact on theterms of block trades.


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