This paper investigates empirical relations between the redemption values of minority shares and valuation methods used by dissenting parties in the judicial valuation of private firms. We examine a comprehensive data set of Finnish judicial appraisal cases in which the judge decides the valuation of the minority stake in a private firm after learning the valuation estimates put forward by the controlling shareholder(s) and the minority shareholder(s). Rationality in valuation will be achieved if a valuation estimate incorporates all the available information regardless of the valuation method adopted. Conversely, the measurement perspective argues that biases inherent in valuation approaches determine the information content in a valuation estimate. Our statistical analyses suggest that the choices made concerning the valuation method are statistically correlated with the appraisal outcomes. We interpret this as evidence consistent with the measurement perspective.
Agency theory suggests that minority shareholders in private firms are vulnerable to shareholder oppression, which necessitates shareholder protection. This paper investigates a form of shareholder protection, the special representative of minority shareholders, which is used in Finland and Sweden. The special representative is a valuation expert, typically an auditor or a lawyer, who assists minority shareholders in shareholder dissent cases which require judicial appraisal of the minority interest in a firm. The different codes of conduct associated with these professions may manifest themselves in their performance as valuation experts. We examine a comprehensive data set of judicial valuation cases of Finnish private firms, in which the judge learns the valuation estimates of the controlling shareholder, the minority shareholder and the special representative and then issues a verdict on the fair price of the firm's shares.Our findings indicate that the special representative benefits minority shareholders by reducing the gap between the minority shareholders' and the judge's valuation estimates. Our results also suggest that the special representative's professional background may affect how he or she values the company. We find that special representatives who are auditors propose more conservative valuation estimates than lawyers do.
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