This article draws on and summarizes the findings of “Private Benefits of Control: An International Comparison,” which was published in the Journal of Finance earlier this year (2004).
Control Premiums and the Effectiveness of Corporate Governance Systems
Article first published online: 12 APR 2005
Journal of Applied Corporate Finance
Volume 16, Issue 2-3, pages 51–72, Spring 2004
How to Cite
Dyck, A. and Zingales, L. (2004), Control Premiums and the Effectiveness of Corporate Governance Systems. Journal of Applied Corporate Finance, 16: 51–72. doi: 10.1111/j.1745-6622.2004.tb00538.x
- Issue published online: 12 APR 2005
- Article first published online: 12 APR 2005
This article summarizes the findings of the authors' study, published recently in the Journal of Finance, that use control premiums paid in large block sales to assess the quality of corporate governance systems. The authors report significant variation in such premiums, with countries like the U.S. and U.K. showing premiums of less than 10% while premiums for countries like Brazil running in excess of 60%.
The study also uses these measures to determine which institutions tend to be most effective in helping minority shareholders limit the diversion of wealth by insider or controlling shareholders. Notable among such institutional variables are better accounting standards, legal protection of minority shareholders, and law enforcement. But the authors also emphasize the importance of a number of extra-legal factors, including more intense product market competition, diffusion of an independent press, and a high rate of tax compliance.