PRIVATE BENEFITS FROM BLOCK OWNERSHIP AND DISCOUNTS ON CLOSED-END FUNDS

The greater the managerial stock ownership in closed-end funds, the larger are the discounts to net asset value. The average discount for funds with blockholders is 14%, whereas the average discount for funds without blockholders is only 4%. This relation is robust over time and to various model specifications that control for other factors that affect discounts. We argue that blockholders receive private benefits that do not accrue to other shareholders and that they veto open-ending proposals to preserve these benefits. We support this argument by documenting a range of potential private benefits received by blockholders in closed-end funds.