Three essays on private benefits

Many issues in corporate governance arise from agency problems, and what's at the heart of agency problems are private benefits. My dissertation attempts to analyze three issues in private benefits. Essay one examines the source of private benefits. Essay two evaluates the effect of private benefits on firm performance. Essay three answers the question of whether private benefits can lead to fraudulent activities.; Essay one uses a sample of block trades to empirically decompose private benefits into two components: benefits accruing to ownership and benefits accruing to control. It documents that private benefits, as measured by block premium, increases slowly with respect to the ownership level, as measured by the percentage of shares acquired in block trade, but increases rapidly with respect to the likelihood of exercising control of the firm, as measured by the probability of top executive turnover following block trade. To illustrate, for a ten-percent block trade, the block premium is 1.20%, 5.75%, 12.80% if there is a zero-percent, twenty-five-percent, fifty-percent likelihood of subsequent top executive turnover, respectively. This decomposition of private benefits can be used to measure non-pecuniary private benefits by examining the block premium when the likelihood of exercising control of the firm is zero.; Essay two examines how the overall private benefits affect future operating performance. I also look at how private benefits affect investment policy (capital expenditure and R&D) and financial policy (capital structure). On a sample of 712 firms whose blocks of shares are traded, I show that higher private benefits are associated with lower future firm operating performance and higher capital expenditure.; Essay three examines the relationship between private benefits and securities litigation or earnings management on a sample of 756 firms whose block of shares are traded. In multivariate logistic regressions, controlling for a variety of factors, I find that the incidence of lawsuits and earnings management is positively related to higher block premium coupled with greater likelihood of CEO turnover. The results suggest that people with greater private benefits of control have greater likelihood of engaging in corporate misconduct.