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Corporate Governance, Illiquidity, and Valuation Issues in Privately-Owned Corporations

Author

Listed:
  • Chenchuramaiah T. Bathala

    (Cleveland State University)

  • Oswald D. Bowlin

    (Texas Tech University)

  • William P. Dukes

    (Texas Tech University)

Abstract

Investors in private corporations face unique problems relating to corporate control, illiquidity and valuation of securities. In this research, we survey a large sample of US corporations. Our sample includes both private and public firms. Major findings of our research are as follows: Private firms use written shareholder agreements for safeguarding ownership interests and dividend payments. Family owned firms dominate the ownership structure of private firms. Insiders of private firms own a much larger proportion of common stock than insiders in public firms, and the CEOs of private firms often happen to be the largest stockholders.

Suggested Citation

  • Chenchuramaiah T. Bathala & Oswald D. Bowlin & William P. Dukes, 2003. "Corporate Governance, Illiquidity, and Valuation Issues in Privately-Owned Corporations," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 8(1), pages 1-30, Spring.
  • Handle: RePEc:pep:journl:v:8:y:2003:i:1:p:1-30
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    References listed on IDEAS

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    1. repec:hrv:faseco:30728046 is not listed on IDEAS
    2. William P. Dukes, 2001. "Where Do We Stand on Closely-Held Firm Valuation?," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 6(1), pages 129-155, Spring.
    3. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    4. Stewart C. Myers, 2000. "Outside Equity," Journal of Finance, American Finance Association, vol. 55(3), pages 1005-1037, June.
    5. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    6. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    7. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    8. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    9. Bennedsen, Morten & Wolfenzon, Daniel, 2000. "The balance of power in closely held corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 113-139.
    10. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
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    Cited by:

    1. Chenchuramaiah T. Bathala & Oswald D. Bowlin & William P. Dukes, 2004. "Sources of Capital and Debt Structure in Small Firms," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 9(1), pages 29-50, Spring.

    More about this item

    Keywords

    Governance; Liquidity; Valuation; Private Firms;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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