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costs and, by extension, to private placement discounts: (1) the
size of the private placement relative to the issuer’s total
shares outstanding, (2) the volatility of the issuer’s recent
economic performance, (3) the overall financial health of the
issuer, and (4) the size of the private placement in terms of
total proceeds. Dr. Bajaj posits that the additional discount
observed in unregistered issues could be attributable solely to
impaired marketability only if those four additional factors were
present in equal measure among both registered and unregistered
private placements.
Dr. Bajaj analyzes the effects of the four additional
factors listed above and concludes that the first three (but not
the fourth) of those factors are systematically related to the
level of private placement discounts. Specifically, he concludes
that, relatively speaking, a high ratio of privately placed
shares to total shares of the issuer, high issuer volatility, and
weak financial health of the issuer tend to be indicative of
higher discounts. Dr. Bajaj then demonstrates that, as compared
to registered private placements, unregistered private placements
tend to involve a higher percentage of the issuer’s total shares,
higher issuer volatility, and financially weaker issuers. That
being the case, Dr. Bajaj concludes that the registered-
unregistered private placement discount differential must be
attributable in part to those three factors rather than just
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