Politicians and Private Benefits of Control

Abstract

The article discusses the identification and valuation of private benefits of control occurring when the State Treasury retains controlling interest in a company that is being privatised. The benefits are gained by politicians at the expense of the State Treasury and private investors. Using the case of a dispute between the State Treasury of the Republic of Poland and Eureko B.V. over the control of PZU, Poland's largest insurance company, we reduce the issue of control of a company to the selection of the ownership structure. To determine the value of private benefits of control, we suggest that the option-to-switch valuation model should be used.