Control Premiums, Minority Discounts, and Optimal Judicial Valuation
This article characterizes controlling and minority share prices and optimal appraisal remedy valuation rules in a rational expectations equilibrium. The model identifies a set of optimal judicial valuation policies that would motivate shareholders to make optimal investment and freeze-out choices and identifies consequences of judicial valuation error. The model suggests that the share appraisal rule, under which minority shares are assessed a minority discount in freeze-out appraisals, would be more optimal than Delaware's pro rata doctrine, which forbids discounting of minority shares. In accordance with the share appraisal rule and in contradiction with their own pro rata doctrine, Delaware courts frequently allow implicit discounts to minority shares in freeze-out appraisals. In summary, the model articulates why courts should not equate minority share value with market price. Consistent with this implication, Delaware courts have always uniformly rejected the notion that market price should be the sole determinant of appraisal value.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
- Holderness, Clifford G. & Sheehan, Dennis P., 1988. "The role of majority shareholders in publicly held corporations : An exploratory analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 317-346, January.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:y:2005:v:48:i:2:p:517-48. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.