Private Placements and Managerial Entrenchment

45 Pages Posted: 29 Nov 2003

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


We re-examine old evidence and provide new evidence on private placements of large-percentage blocks of stock. Our goal is to judge whether the prevailing hypotheses of monitoring and certification explain most private placements. Examining new evidence on events following the private placement and using a much larger sample than previous studies, our findings suggests that private placements are often made to passive investors, thereby helping management solidify their control of the firm. Although monitoring and certification may motivate some private placements, the evidence with respect to placement discounts, stock-price reactions, the post-placement activities of the purchasers, and a comparison with arms-length trades of large blocks of stock favors managerial entrenchment as the explanation for many private placements.

Keywords: G32, G34

JEL Classification: Private Placement, Entrenchment

Suggested Citation

Barclay, Michael J. and Holderness, Clifford G. and Sheehan, Dennis P., Private Placements and Managerial Entrenchment. Journal of Corporate Finance, Forthcoming, AFA 2004 San Diego Meetings Paper, Available at SSRN: or

Michael J. Barclay (Contact Author)

University of Rochester - Simon School (Deceased)


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

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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