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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]

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  • 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
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    References listed on IDEAS

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    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.
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    Keywords

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    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

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