Agency conflicts in public and negotiated transfers of corporate control

We analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners, and show that the transaction mode is impor tant. Negotiated block trades preserve a low level of ownership concentrati on, inducing more inefficient extraction of private benefits. In contrast, public acquisitions increase ownership concentration, resulting in fewer pr ivate benefits and higher firm value. Within our model, the incumbent and n ew controlling party prefer to trade the block because of the dispersed sha reholders' free-riding behavior. We also explore the regulatory implication s of this agency problem and its impact on the terms of block trades.