Firm-Specific Factors Affecting the Private Benefits of Control in Concentrated Ownership Economies

Abstract

Purpose – To seek firm-specific determinants of private benefits (PBs) in a concentrated ownership economy and compare the evidence with Barclay and Holderness (1989) findings on disperse ownership firms.

Design/methodology/approach – We estimate the PBs of control implicit in 54 large block transactions in Israel, via an elaborated Barclay and Holderness (1989) methodology, and then examine possible determinants of PBs using multivariate regressions.

Findings – Cross-sectional regressions indicate that PBs, as a proportion of firm's market value, decrease with firm's size, leverage, and profitability and increase when an individual or family controls the firm.

Research limitations/implications – Our results reinforce and are even stronger and more significant than Barclay and Holderness (1989) U.S. evidence, possibly because the magnitude of PBs in concentrated ownership economies is much higher than in disperse ownership economies. The main limitation is our reliance on one country (Israel) data only.

Originality/value – We extend Barclay and Holderness (1989) study to a concentrated ownership economy, and document clearer and more significant results on the determinants of the PBs of control.

Citation

Barak, R. and Lauterbach, B. (2012), "Firm-Specific Factors Affecting the Private Benefits of Control in Concentrated Ownership Economies", Ferris, S.P., John, K. and Makhija, A.K. (Ed.) Advances in Financial Economics (Advances in Financial Economics, Vol. 15), Emerald Group Publishing Limited, Leeds, pp. 59-77. https://doi.org/10.1108/S1569-3732(2012)0000015005