The Cost of Corporate Control: The Case of Billabong International
2004 (English)In: Accounting Research Journal, Vol. 17, 113-120 p.Article in journal (Refereed) Published
We propose a framework for determining the cost associated with achieving corporate control for the controlling shareholder. In order to gain control of a company the controlling shareholder must reduce the level of diversification of their investment portfolio and it is the value to the shareholder of this reduction in the level of diversification that we focus on. We argue that it provides an estimate of the cost of control. We assume that the controlling shareholder’s portfolio consists of the controlling investment in the company with the remaining wealth invested in a utility maximising combination of the market portfolio and the risk free asset. We apply this valuation approach to a well known Australian company using publicly available information and we find that the cost of poor diversification is substantial and that it varies with investment horizon and level of risk aversion.
Place, publisher, year, edition, pages
2004. Vol. 17, 113-120 p.
IdentifiersURN: urn:nbn:se:uu:diva-68305OAI: oai:DiVA.org:uu-68305DiVA: diva2:96216