Conflicting Values in Judicial Valuations

• In Event: Tax and Finance

Abstract

Do courts employ finance neutrally and consistently, or do different courts fashion financial tools in court-specific ways? I assemble 20 years (52,000 pages) of judicial opinions, legal briefs, and expert reports from three settings where statutes assign courts an ostensibly shared job of valuing business interests: Delaware Chancery shareholder appraisals, Tax Court estate & gift tax cases, and Bankruptcy cramdowns. With natural language processing, a large language model, and hand-performed review, I show each court's valuation approach is siloed, including use of nearly non-overlapping financial scholarship and expert witnesses. These silos are meaningful: Chancery methodological choices, meticulously explained, systematically increase valuations of private and weakly traded business interests, while Tax Court choices decrease them. A typical private firm minority interest is worth roughly twice as much for appraisal purposes as for gift tax purposes. Bankruptcy Court methods, conversely, are so unspecified as to be unreconstructable. Are these differences a feature, where each court's valuation practice productively serves each underlying law’s distinctive role, or a bug? Bankruptcy opacity plausibly speeds reorganizations and resolves hold-up problems, but generates costs from bias. Delaware jurisprudence risks windfalls, but suits transactional planning and is mostly aligned with its imperative to bolster corporate governance. Tax Court methods, however, not only undermine the estate & gift taxes on a scale larger than previously understood, but also incentivize poor corporate governance as an unintended result. Delaware corporate law’s "fair value” standard provides a novel solution to these tax pathologies, which are often rooted in the Treasury’s "willing buyer, willing seller” conception of valuation.

Author

• Andrew Granato, Yale School of Management, Yale Law School