The Valuation of Large Blocks of Shares in an Emerging Market

Using data from the Bulgarian mass privatization auctions, we analyze the bids submitted by institutional investors for shares in newly privatized firms. The results support the hypothesisthat there are private benefits of control that accrue to large blockholders. Institutions with ex ante better ability to monitor and generate higher cash flows for all investors bid less aggressively. Our overall analysis of the determinants of bid prices submitted by institutions shows that, in an economy where small investors have very limited ways to enforce their property rights, institutions primarily take into account the private benefits of control when they evaluate stock holdings