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Agency Conflicts in Public and Negotiated Transfers of Corporate Control

Mike Burkart, Denis Gromb and Fausto Panunzi
The Journal of Finance
Vol. 55, No. 2 (Apr., 2000), pp. 647-677
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/222518
Page Count: 31
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Agency Conflicts in Public and Negotiated Transfers of Corporate Control
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Abstract

We analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners, and show that the transaction mode is important. Negotiated block trades preserve a low level of ownership concentration, inducing more inefficient extraction of private benefits. In contrast, public acquisitions increase ownership concentration, resulting in fewer private benefits and higher firm value. Within our model, the incumbent and new controlling party prefer to trade the block because of the dispersed shareholders' free-riding behavior. We also explore the regulatory implications of this agency problem and its impact on the terms of block trades.

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