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registered private placements (i.e., because such shares can be
sold in the public market). However, the results of the private
placement studies indicate that even registered private placement
shares are issued at a discount, although such discounts tend to
be lower than those observed in unregistered private placements.
Dr. Bajaj explains that phenomenon by positing that privately
placed shares, whether registered or unregistered, tend to be
issued to purchasers of large blocks of stock who demand
discounts to compensate them for assessment costs and anticipated
monitoring costs. He states: “The discount offered to buyers is
a compensation for the cost of assessing the quality of the firm
and for the anticipated costs of monitoring the future decisions
of its managers.”
b. Refinement of Registered/Unregistered
Discount Differential
Dr. Bajaj further contends that the additional discount
typical of unregistered private placements (as compared to
registered private placements) is not entirely attributable to
the fact that unregistered shares, unlike registered shares,
generally cannot be sold in the public market. Rather, he
contends that such differential is attributable in part to higher
assessment and monitoring costs incurred in unregistered private
placements as compared to registered private placements. In
support of his theory, Dr. Bajaj suggests four factors that might
have a correlative relationship to assessment and monitoring
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