This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent AbstractWe show that the prospect of a debt renegotiation favorable to shareholders reduces the Örmís equity risk. The equity beta and return volatility are lower in countries where the bankruptcy code favors debt renegotiations and for Örms with more shareholder bargaining power relative to debt holders. These relations weaken as the countryís insolvency procedure favors liquidations over renegotiations. In the limit, when debt contracts cannot be renegotiated, the equity risk is independent of shareholdersí incentives to default strategically. We argue that these Öndings support the hypothesis that the threat of strategic default can reduce the Örmís equity risk.

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder-debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms' investment and risk depends on the firm-specific probability of default. A differencesin-differences analysis of firms' investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.

We study the determinants of private benefi ts of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb, and Panunzi (2000) explicitly accounting for both block premia and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fi ght a potential tender offer for the target's stock. We fi nd evidence of large private benefi ts of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash fl ow hypothesis.

We study the determinants of private benefi ts of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb, and Panunzi (2000) explicitly accounting for both block premia and block discounts in the data. The evidence suggests that the occurrence of a block premium or discount depends on the controlling block holder's ability to fi ght a potential tender offer for the target's stock. We fi nd evidence of large private benefi ts of control and of associated deadweight losses, but also of value creation by controlling shareholders. Finally, we provide evidence consistent with Jensen's free cash fl ow hypothesis.

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We study the determinants of private bene…ts of control in negotiated block transactions. We estimate the block pricing model in Burkart, Gromb, and Panunzi (2000) (BGP) acknowledging the presence of both block premia and block discounts in our sample. We …nd evidence in favor of the BGP model according to which the occurrence of block premia and block discounts depends on how competitive the block seller can be in opposing a potential tender o¤er for the target's stock. Private bene…ts represent 3% of the target …rm's stock market value. In addition, our approach allows us to measure the e¢ ciency with which private bene…ts are extracted: On average, each $1 of private bene…ts costs shareholders $2 of equity value. Private bene…ts decrease with target's size and short term debt, and increase with target's past performance, intangible assets, and cash. The later e¤ect is stronger if the target's cash is higher than the acquirer's cash. Acquirer's overpay an average of 7% of the target's stock price relative to the BGP benchmark. We use our structural estimation to conduct a counterfactual policy evaluation of the Mandatory Bid Rule. Our results suggest that the Mandatory Bid Rule fails to add value to shareholders because it fails to prevent welfare decreasing transactions and deters welfare increasing transactions by forcing ine¢ cient tender o¤ers.