The cost of corporate control: The case of Billabong International

Heaney, R and Holmen, M 2004, 'The cost of corporate control: The case of Billabong International', Accounting Research Journal, vol. 17, no. Special issue, pp. 113-120.


Document type: Journal Article
Collection: Journal Articles

Title The cost of corporate control: The case of Billabong International
Author(s) Heaney, R
Holmen, M
Year 2004
Journal name Accounting Research Journal
Volume number 17
Issue number Special issue
Start page 113
End page 120
Total pages 7
Publisher RMIT University, Department of Economics and Finance
Abstract 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 providesan 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 fmd that the cost of poor diversification is substantial and that it varies with investment horizon and level of risk aversion.
Subject Corporate Governance and Stakeholder Engagement
ISSN 1030-9616
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