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The Value of Control and the Costs of Illiquidity

Albuquerque, R. and Schroth, E. (2015). The Value of Control and the Costs of Illiquidity. Journal of Finance, 70(4), pp. 1405-1455. doi: 10.1111/jofi.12207

Abstract

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.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Albuquerque, R. & Schroth, E. (2015). The Value of Control and the Costs of Illiquidity. Journal of Finance, 70(4), pp. 1405-1455., which has been published in final form at http://dx.doi.org/10.1111/jofi.12207. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/14003
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