Does the Control–Cash Flow Rights Wedge Capture Private Benefits of Control? Evidence from a Mandatory Bid Rule Reform

Part of the Lubar Research Seminar Series

Speaker:  Carlos Acuna, Lubar College of Business, University of Wisconsin – Milwaukee

Carlos examines whether the control–cash flow rights wedge captures private benefits of control (PBC) by exploiting Chile’s adoption of the Mandatory Bid Rule (MBR), which requires equal-price offers to all shareholders in control transactions. Firms could opt out for three years through early notification, with opting out reflecting higher PBC. He finds an inverted U-shaped relationship between opting out and the wedge, consistent with outsider monitoring limiting expropriation beyond the turning point. The inverted-U implies that the wedge is an imperfect proxy for PBC, calling for measures that capture both insider expropriation incentives and outsider monitoring intensity.