Majority and Minority Ownership of Publicly‐Traded Firms: A Test of the Value of Control Using Market Multiples

Roger C. Graham · Craig E. Lefanowicz

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Reporting and Valuation Research

Abstract

Publicly‐traded companies that are controlled by other publicly‐traded companies provide a unique setting in which to test whether the market values of majority and minority ownership interests are proportionate to their ownership percentages. Test results indicate that the value of subsidiary net assets and net income are greater to majority shareholders than to minority shareholders. However, comparison of asset and income valuation with a sample of diffusely‐held firms indicates that this valuation asymmetry is not due to a wealth transfer from the minority to the majority owners but to a discounting of the portion of the subsidiary owned by the minority shareholders.

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