Private benefits of control

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Private benefits of control is a technical term used by corporate lawyers and economists. It refers to the economic gain from exerting influence on a company by large shareholders at the expense of small shareholders.

Types[edit]

There are two different types of private benefits of control from company value perspective: Benefits which reduce the value of company and which do not so. An example was given by Barclay and Holderness, in comparison to benefits that accrue to all shareholders by raising the productivity of the company.

Protection[edit]

In order to prevent the impact on the small shareholders from the realization of these benefits of large shareholders, there is usually a Mandatory Offer policy in transaction area for protection of the small shareholders from kinds of value-destroying transactions.

See also[edit]

Notes[edit]

  1. ^ MJ Barclay and CG Holderness, 'Private Benefits of Control in Public Corporations' (1989) 25 Journal of Financial Economics 371, 374. The authors go on to argue these benefits could be measured by differences in stock prices: " Our block trades are typically negotiated at arm’s length, and the trading parties presumably forecast rationally the effect of their trade on the stock’s exchange price. Thus, any private benefits will be reflected in the difference between the block-trade price and the post-announcement exchange price."

References[edit]

  • MJ Barclay and CG Holderness, 'Private Benefits of Control in Public Corporations' (1989) 25 Journal of Financial Economics 371