IDEAS home Printed from https://ideas.repec.org/a/prg/jnloce/v14y2021i1id2021_1_01p3-24.html
   My bibliography  Save this article

A short review of literature on basics of relation between lack of marketability and security prices
[Stručný přehled literatury k základnímu vztahu nelikvidnosti a cen akcií]

Author

Listed:
  • Tomáš Buus

Abstract

A number of studies and textbooks in the field of corporate valuation and corporate finance consider or prove the liquidity of shares in corporations as an important factor in value, resp. stock prices. Despite the urgency of this problem, only scarce information is available in the Czech literature on company valuation about the principles of applying the discount for lack of marketability (DLOM) and its size. This article provides an overview of the literature describing the basic relationship between liquidity (more precisely, public marketability) and the share price. A critical look at the results of empirical studies and theoretical models of this so-called illiquidity discount shows a number of challenges for its further research and also that its application not only in Czech conditions, of which most DLOM studies do not come (and therefore not locally common), but even in the home United States, there may be strong doubts as to whether the presented discounts include only the effect of illiquidity. Last but not least, this paper documents the development of marketability discount theory and empirically observed discount values.

Suggested Citation

  • Tomáš Buus, 2021. "A short review of literature on basics of relation between lack of marketability and security prices [Stručný přehled literatury k základnímu vztahu nelikvidnosti a cen akcií]," Oceňování, Prague University of Economics and Business, vol. 14(1), pages 3-24.
    • Handle: RePEc:prg:jnloce:v:14:y:2021:i:1:id:2021_1_01:p:3-24
    DOI: 10.18267/j.ocenovani.256
    as

    Download full text from publisher

    File URL: http://ocenovani.vse.cz/artkey/oce-202101-0001_strucny-prehled-literatury-k-zakladnimu-vztahu-nelikvidnosti-a-cen-akcii.php
    Download Restriction: free of charge
    File URL: http://ocenovani.vse.cz/pdfs/oce/2021/01/01.pdf
    Download Restriction: free of charge
    File URL: https://libkey.io/10.18267/j.ocenovani.256?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Officer, Micah S., 2007. "The price of corporate liquidity: Acquisition discounts for unlisted targets," Journal of Financial Economics, Elsevier, vol. 83(3), pages 571-598, March.
    2. Jain, Bharat A & Kini, Omesh, 1994. "The Post-Issue Operating Performance of IPO Firms," Journal of Finance, American Finance Association, vol. 49(5), pages 1699-1726, December.
    3. Radosław Pastusiak & Jakub Keller & Michał Radke, 2020. "Marketability Discount in Various Economic Environments. Comparison of Developed and Emerging Markets on the Example of the USA and Poland," JRFM, MDPI, vol. 13(6), pages 1-15, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Annette B. Poulsen & Mike Stegemoller, 2008. "Moving from Private to Public Ownership: Selling Out to Public Firms versus Initial Public Offerings," Financial Management, Financial Management Association International, vol. 37(1), pages 81-101, March.
    2. Sian Owen & Jo-Ann Suchard, 2013. "The impact of venture capital/private equity investment on the performance of IPOs in Australia," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 19, pages 400-420, Edward Elgar Publishing.
    3. Wei Huang & Hong Zhang & Abhinav Goyal & Jason Laws, 2019. "Internal capital market mergers in weak external market environment: An emerging market evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(4), pages 1486-1505, October.
    4. Koh, SzeKee & Durand, Robert B. & Watson, Iain, 2011. "Seize the moment: Opportunism in Australian capital markets," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 374-389, September.
    5. Chan, Kam C. & Li, Guangzi, 2022. "Prior banking relationships and long-term IPO performance," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 123-134.
    6. Cooney, John W. & Moeller, Thomas & Stegemoller, Mike, 2009. "The underpricing of private targets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 51-66, July.
    7. Waleed Khalid & Kashif Ur Rehman & Muhammad Kashif, 2019. "The Impact of Merger and Acquisition Firms on Stock Market Bubble," Global Regional Review, Humanity Only, vol. 4(1), pages 335-342, March.
    8. Laura Bottazzi & Marco da Rin, 2003. "Financing Entrepreneurial Firms in Europe: Facts, Issues, and Research Agenda," CESifo Working Paper Series 958, CESifo.
    9. Aybar, Bülent & Thanakijsombat, Thanarerk, 2015. "Financing decisions and gains from cross-border acquisitions by emerging-market acquirers," Emerging Markets Review, Elsevier, vol. 24(C), pages 69-80.
    10. Wagner, W.B., 2002. "Divestment, Entrepreneurial Incentives and the Decision to go Public," Discussion Paper 2002-47, Tilburg University, Center for Economic Research.
    11. Mu-Shun Wang & Shaio Yan Huang & An An Chiu, 2011. "Liquidity, Management Effort And Performance," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(1), pages 1-14.
    12. Ben Slimane, Faten & Padilla Angulo, Laura, 2019. "Strategic change and corporate governance: Evidence from the stock exchange industry," Journal of Business Research, Elsevier, vol. 103(C), pages 206-218.
    13. Lian, Qin & Wang, Qiming, 2012. "Acquisition valuations of withdrawn IPOs: When IPO plans turn into mergers," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1424-1436.
    14. Fama, Eugene F. & French, Kenneth R., 2004. "New lists: Fundamentals and survival rates," Journal of Financial Economics, Elsevier, vol. 73(2), pages 229-269, August.
    15. Beckmann, Klaus S. & Escobari, Diego A. & Ngo, Thanh, 2019. "The real earnings management of cross-listing firms," Global Finance Journal, Elsevier, vol. 41(C), pages 128-145.
    16. Ahmed, Yousry & Elshandidy, Tamer, 2016. "The effect of bidder conservatism on M&A decisions: Text-based evidence from US 10-K filings," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 176-190.
    17. Waqas Mehmood & Rasidah Mohd-Rashid & Yasir Abdullah & Ataul Karim Patwary & Attia Aman-Ullah, 2023. "Inclusive mapping of initial public offerings: a bibliometric and literature review study," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(1), pages 655-700, February.
    18. Lie, Erik & McConnell, John J., 1998. "Earnings signals in fixed-price and Dutch auction self-tender offers," Journal of Financial Economics, Elsevier, vol. 49(2), pages 161-186, August.
    19. Wang, Xiaoming & Cao, Jerry & Liu, Qigui & Tang, Jinghua & Tian, Gary Gang, 2015. "Disproportionate ownership structure and IPO long-run performance of non-SOEs in China," China Economic Review, Elsevier, vol. 32(C), pages 27-42.
    20. Ying Xiao & Chris Yung, 2015. "Extrapolation Errors in IPOs," Financial Management, Financial Management Association International, vol. 44(4), pages 713-751, October.

    More about this item

    Keywords

    Lack of marketability discount; Restricted stocks; Pre-IPO; Options; Diskont za omezenou obchodovatelnost; opce;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:prg:jnloce:v:14:y:2021:i:1:id:2021_1_01:p:3-24. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Stanislav Vojir (email available below). General contact details of provider: https://edirc.repec.org/data/uevsecz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.