The Block Pricing Puzzle

46 Pages Posted: 9 Apr 2001

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Clifford G. Holderness

Boston College - Department of Finance

Dennis P. Sheehan

Pennsylvania State University

Date Written: March 2001

Abstract

There are two ways to buy a large-percentage block of stock - from another shareholder or directly from the corporation. Because the traded asset is the same, one might expect the pricing of these transactions to be similar. Block trades, however, are priced at an 11% premium to the post-announcement exchange price, while private placements are priced at a 19% discount. This difference reflects what happens after the transactions. Most block-trade purchasers become involved in management, suggesting that their premiums reflect anticipated private benefits. Most private-placement purchasers remain passive, firm value declines, and there are few acquisitions. This suggests that private-placement discounts often reflect compensation to external blockholders for helping to entrench management.

Keywords: Negotiated block trades, private placements, block pricing, discounts, premiums

JEL Classification: G3

Suggested Citation

Barclay, Michael J. and Holderness, Clifford G. and Sheehan, Dennis P., The Block Pricing Puzzle (March 2001). Available at SSRN: https://ssrn.com/abstract=265712 or http://dx.doi.org/10.2139/ssrn.265712

Michael J. Barclay

University of Rochester - Simon School (Deceased)

N/A

Clifford G. Holderness

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-2768 (Phone)
617-277-8071 (Fax)

Dennis P. Sheehan (Contact Author)

Pennsylvania State University ( email )

Smeal College of Business
University Park, PA 16802
United States
814-863-8512 (Phone)
814-865-3362 (Fax)

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