1 City, University of London · 2 Albuquerque is from Boston University Questrom School of Business and Católica-Lisbon School of Business and Economics. Schroth is from Cass Business School, City University London. The authors thank Fernando Anjos, Sugato Bhattacharyya, Giovanni Calice, Daniel Carvalho, João Cocco, Amy Dittmar, J · 3 Albuquerque is from Boston University Questrom School of Business and Católica-Lisbon School of Business and Economics. Schroth is from Cass Business School, City University London. The authors thank Fernando Anjos, Sugato Bhattacharyya, Giovanni Calice, Daniel Carvalho, João Cocco, Amy Dittmar, Joo
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.