The value of control and the costs of illiquidity

• Autores: Rui Albuquerque, Enrique Schroth
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 70, Nº 4, 2015, págs. 1405-1455
• Idioma: inglés
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• Resumen

  • We develop a search model of block trades that values the illiquidity of controlling stakes. The model considers several dimensions of illiquidity. First, following a liquidity shock, the controlling blockholder is forced to sell, possibly to a less efficient acquirer. Second, this sale may occur at a fire sale price. Third, absent a liquidity shock, a trade occurs only if a potential buyer arrives. Using a structural estimation approach and U.S. data on trades of controlling blocks of public corporations, we estimate the value of control, blockholders' marketability discount, and dispersed shareholders' illiquidity-spillover discount