Private Equity Placements and Illiquidity Discount

Abstract

This paper presents evidence on the private placement discounts for a large sample of private placement transactions completed by public companies between 2002 and 2007. Using detailed information about the restriction duration for the unregistered common stocks placed, I analyze whether the lack of liquidity of unregistered shares has an impact on the issue discounts. My results suggest that illiquidity is not priced into private placement discounts. Consistent with the previous literature, I find that revenues and intangible assets of the issuer and the size of the placement have a significant impact on the issue discounts.

Keywords: Private equity placements, marketability discount

JEL Classification: G30, G32, G39