Does a Leopard Change its Spots? Auditors and Lawyers as Valuation Experts for Minority Shareholders in the Judicial Appraisal of Private Firms

Forthcoming, Journal of Business Finance and Accounting

Posted: 5 Feb 2020

See all articles by Jani Saastamoinen

Jani Saastamoinen

University of Eastern Finland

Hanna Savolainen

University of Eastern Finland

Date Written: January 13, 2020

Abstract

Agency theory suggests that minority shareholders in private firms are vulnerable to shareholder oppression, which necessitates shareholder protection. This paper investigates a form of shareholder protection, the special representative of minority shareholders, which is used in Finland and Sweden. The special representative is a valuation expert, typically an auditor or a lawyer, who assists minority shareholders in shareholder dissent cases which require judicial appraisal of the minority interest in a firm. The different codes of conduct associated with these professions may manifest themselves in their performance as valuation experts. We examine a comprehensive data set of judicial valuation cases of Finnish private firms, in which the judge learns the valuation estimates of the controlling shareholder, the minority shareholder and the special representative and then issues a verdict on the fair price of the firm’s shares. Our findings indicate that the special representative benefits minority shareholders by reducing the gap between the minority shareholders’ and the judge’s valuation estimates. Our results also suggest that the special representative’s professional background may affect how he or she values the company. We find that special representatives who are auditors propose more conservative valuation estimates than lawyers do.

Keywords: minority shareholder protection, private business valuation, valuation experts, judicial valuation, law and finance, auditor, lawyer, squeeze-out, sell-out

JEL Classification: G32, K22, M41, M42

Suggested Citation

Saastamoinen, Jani and Savolainen, Hanna, Does a Leopard Change its Spots? Auditors and Lawyers as Valuation Experts for Minority Shareholders in the Judicial Appraisal of Private Firms (January 13, 2020). Forthcoming, Journal of Business Finance and Accounting. Available at SSRN: https://ssrn.com/abstract=3518344

Jani Saastamoinen (Contact Author)

University of Eastern Finland ( email )

PO Box 111
Joensuu, 80100
Finland

Hanna Savolainen

University of Eastern Finland ( email )

PO Box 111
Joensuu, 80100
Finland

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