A cross country analysis of private benefits of control

• Main Authors: Toh, Ting Jun, Wiranegara, Cynthia, Abdullah Al Azad Adnan
• Other Authors: Suman Banerjee
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Business::Finance::Corporate finance
• Online Access: http://hdl.handle.net/10356/48141
• Institution: Nanyang Technological University

This paper serves to examine the legal factors which may affect the extraction of private benefit during control takeover transactions. Our research is built upon the Private Benefit of Control: An International Comparison paper, by Alexander Dyck and Luigi Zingales (2002). We construct a measure of the private benefits of control in five countries and based on seven control transactions between 1984 and 2006. Furthermore, instead of examining the 29 legal and extra-legal determinants in Dyck and Zingales’ paper, we add on four more determinants – SOX law, efficiency of judicial system, dividend payout and level of corruption. After a series of data collection, we realize that we can only examine 25 of the variables in Dyck and Zingales’ paper due to constraints in data. Arriving at our final data set of 7 based on 29 variables, we carried out reliability test, t-test, ANOVA test and simple linear regression. Throughout the tests, we eliminated 10 variables whose hypothesis have been rejected and arrive at 19 factors which are significant. As a correlation test revealed significant correlation amongst factors, we carried out factor component analysis and showed that significant variables can be grouped into three components in explaining the private benefit of controls. Regression based on the 3 new components was run again and found to provide better explanation for private benefits of control. Findings for variables in our research are supported by that from Dyck and Zingales’ paper, thereby suggesting that the determinants are able to withstand the test of time. Furthermore, we discovered that efficiency of judicial system and buyer and seller’s bargaining power play significant roles in affecting private benefit of control.