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The Valuation Effects of Private Placements of Public Corporations' Common Stock

Author

Listed:
  • W. R. McDaniel

    (Florida Atlantic University)

  • William R. McDaniel

    (Florida Atlantic University)

Abstract

Outside shareholders should benefit when the firm issues common stock through a private placement. Our propositions are (1) that the private issue of common equity creates a value-maximizing insider that has the incentive and ability to monitor and discipline, and thereby reduce agency costs and (2) investors can reduce uncertainty about the value of thinly traded stock by observing the share price negotiated by the well-informed buyer. Both of these benefits are especially applicable to small firms. Our empirical evidence supports hypotheses based on these propositions.

Suggested Citation

  • W. R. McDaniel & William R. McDaniel, 1992. "The Valuation Effects of Private Placements of Public Corporations' Common Stock," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(3), pages 205-220, Spring.
    • Handle: RePEc:pep:journl:v:1:y:1992:i:3:p:205-220
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Valuation; Stock; Equity; Private Placements;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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