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What Determines the Discount for Private Equity Offerings - Ownership or Control Rights?

27 Pages Posted: 6 Mar 2007  

Tai Ma

National Sun Yat-sen University

Huei Yun Hsu

National Sun Yat-sen University

Ching Yi Yeh

National Sun Yat-sen University

Kai Wei Chang

National Sun Yat-sen University

Abstract

This paper examines the relationship between private benefits and the discount of private equity offerings. Measuring private benefits in terms of both control rights and cash flow rights for insiders and outsiders, we find that control right is the dominant factor in private placement discounts. Private benefits are the most important factor in pricing private equity offerings, explaining 17.7% of private placement discount, and 16% of which comes from control right, only 2% from ownership. Furthermore, insiders are willing to pay more for private offerings than outsiders especially in high ownership concentration (greater than 25%) case. Finally, we find that contrary to the literature in corporate governance, the level of control seems to mean more to insiders than the deviation between control right and ownership in private equity offerings.

Keywords: Private placement, discount, private benefits.

JEL Classification: G0, G3

Suggested Citation

Ma, Tai and Hsu, Huei Yun and Yi Yeh, Ching and Chang, Kai Wei, What Determines the Discount for Private Equity Offerings - Ownership or Control Rights?. Available at SSRN: https://ssrn.com/abstract=967258 or http://dx.doi.org/10.2139/ssrn.967258

Tai Ma (Contact Author)

National Sun Yat-sen University ( email )

70 Lien-hai Rd.
Kaohsiung, 80743
Taiwan
886-7-525-2000 ext. 4810 (Phone)
886-7-525-4899 (Fax)

HOME PAGE: http://www.finance.nsysu.edu.tw/teachers/matai/e-index.htm

Huei Yun Hsu

National Sun Yat-sen University

70 Lien-hai Rd.
Kaohsiung 80424, 80743
Taiwan

Ching Yi Yeh

National Sun Yat-sen University

70 Lien-hai Rd.
Kaohsiung 80424, 80743
Taiwan

Kai Wei Chang

National Sun Yat-sen University

70 Lien-hai Rd.
Kaohsiung 80424, 80743
Taiwan

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