The Value of the Freezeout Option

43 Pages Posted: 29 Nov 2004

See all articles by Zohar Goshen

Zohar Goshen

Columbia Law School; European Corporate Governance Institute (ECGI); Ono Academic College Faculty of Law

Zvi Wiener

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Date Written: 2003


The value of the freezeout option is important in many legal policy issues concerning corporate law. In this article, we present, for the first time, a method for determining the value of the minority stock and the freezeout option. We price the freezeout option with two different sets of assumptions regarding the controlling shareholder informational advantage, using both an exogenous and endogenous stock prices in our pricing. The result of our model indicates that when using an exogenous market price to determine fair value, the freezeout option has a low value and the minority stock is only slightly discounted. This result implies that the use of publicly known information, excluding market prices, in determining a fair value for minority stocks will not cause expropriation of minority shareholders and will not lead to inefficiency in corporate and controlling owners' decisions. Additionally, our model shows that a complete reliance on market prices will lead to inability to positively price and trade minority shares. Any consistent and predictable use of market prices by the courts in the valuation process will cause a discount relative to the weight given to market prices in that process. Combining both results it can be said that, indeed, in an efficient market, prices do reflect fair value, but this is so because courts do not heavily and consistently base their valuations on market prices. Empirical studies support our results.

Keywords: freezeout, appraisal, asymmetric information, inside information, efficient market, courts performance

JEL Classification: G31, G32, K20, K22

Suggested Citation

Goshen, Zohar and Wiener, Zvi, The Value of the Freezeout Option (2003). Available at SSRN: or

Zohar Goshen (Contact Author)

Columbia Law School ( email )

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212-854-9760 (Phone)
212-854-7946 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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1000 Brussels

Ono Academic College Faculty of Law

104 Zahal St.
Kiryat Ono, 55000


Zvi Wiener

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
(972)-2-588-3049 (Phone)
(972)-2-588-3105 (Fax)


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