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Why do holding companies in pyramidal groups trade at a discount?

Author

Listed:
  • ROMMENS, An
  • DELOOF, Marc
  • JEGERS, Marc

Abstract

Holding companies, which play an important role in corporate finance in Belgium and in other Continental European countries, often trade at a discount to their estimated net asset value (NAV). First, we discuss possible explanations for this discount: holding company destroys value, NAV overestimates actual value, noise traders cause underpricing, and private benefits of control. Second, we investigate the discount of the Belgian holding company Cobepa, for which detailed information on the calculation of the NAV was available. We can exclude the first three explanations for the Cobepa case, we cannot rule out private benefits as an explanation.

Suggested Citation

  • ROMMENS, An & DELOOF, Marc & JEGERS, Marc, 2004. "Why do holding companies in pyramidal groups trade at a discount?," Working Papers 2004007, University of Antwerp, Faculty of Business and Economics.
    • Handle: RePEc:ant:wpaper:2004007
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