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The Effect of Ownership Structure on the Value of a Private Company

  • Johan Van den Cruijce ORCID logo EMAIL logo , Gamble Baffert II , Nicolas Janssens de Bisthoven und Jurgen Tistaert
Veröffentlicht/Copyright: 8. November 2022
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Abstract

The value of an unlisted company is a contentious issue. This is because investors value marketability and liquidity, but vacillate on the appropriate percentage discount that needs to be applied for the valuation of a private company. As more companies find it easier to remain private, a better understanding of this discount is increasingly important. The extant discount studies are mainly derived from financial and transactional data. They provide reliable averages using large sample sizes, but present few determinants to explain the wide ranges in the observations. Our research is based on a unique, alternative data source that complements existing studies by tapping into rich contextual information. Specifically, we examine court decisions that determine the appropriate discount and relate this percentage to an important characteristic of a private company: its “open” character, i.e. its willingness to accept outside shareholders or partners in the venture. We find that open and closed companies differ in value 6.5%. Our conclusions hold after controlling for known determinants of the discount. Our results impact valuation approaches and present real-world application for the owners and managers of private companies who may consider opening ownership to third parties.

JEL Classification: G30; G39

Corresponding author: Johan Van den Cruijce, Vlerick Business School, Reep 1, Gent 9000, Belgium, E-mail:

Acknowledgements

Johan Van den Cruijce is Managing Director at Atlas Services Belgium (Orange group); Gamble Baffert II is Mergers and Acquisitions Tax Associate at PricewaterhouseCoopers; Nicolas Janssens de Bisthoven is Legal Counsel at Atlas Services Belgium (Orange group); Jurgen Tistaert heads the Quantitative Modelling and Integration team for Equity & Commodity Derivatives at ING Financial Markets. The views, opinions and assumptions expressed by the authors do not necessarily state or reflect those of their respective employers or institutions. This paper was drafted under the academic supervision of Prof. Dr. Cynthia Van Hulle (KU Leuven) and Prof. Dr. Wouter De Maeseneire (Vlerick Business School). The authors thank Prof. Dr. Martina Vandebroek (KU Leuven) for guidance on methodology. The data collection was performed with the assistance of Emina Šadić Herzberger, Jackson Nock, Christophe Minnart, Anisa Sula, Nishka Malik, Starlyn Endres, Vincent Van den Cruijce and Julie Van Opdenbosch. We gratefully acknowledge the help of Alina Salgado and Sandrine Ferreira-Terreygeol (Executive Assistant at Atlas Services Belgium) in the editing of the manuscript.

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Supplementary Material

The online version of this article offers supplementary material (https://doi.org/10.1515/rle-2022-0030).


Received: 2022-05-05
Revised: 2022-09-06
Accepted: 2022-09-29
Published Online: 2022-11-08

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