Block Premia, Litigation Risk, and Shareholder Protection

Julien Le Maux · Claude Francœur

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Corporate Finance and Governance Financial Markets and Investment Strategies Corporate Governance and Law

Abstract

Abstract Blocks of shares are typically traded at a premium for the buyer. The academic literature shows that anticipated private benefits are the main determinant of this premium rather than the projected value of future synergies. The results of this study indicate that a target's litigation risk has a significant impact on the control premium. Acquirers tend to lower block premia significantly in anticipation of potential litigation related to financial disclosure or the target's market value. Legal shareholder protection also plays a significant role in countering shareholder expropriation. Block buyers pay higher premia to acquire targets that operate in protective legal environments.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1998Law and Finance 1999Corporate Ownership Around the World 1997Legal Determinants of External Finance 1986Large Shareholders and Corporate Control 1988Management ownership and market valuation 1985The Structure of Corporate Ownership: Causes and Consequences

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