Firm Value and Marketability Discounts

27 Pages Posted: 13 Apr 2001

See all articles by Mukesh Bajaj

Mukesh Bajaj

LECG, LLC; University of California, Berkeley - Haas School of Business

David J. Denis

University of Pittsburgh

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Atulya Sarin

Santa Clara University - Department of Finance

Date Written: Febuary 26, 2001

Abstract

The marketability of an asset refers to the degree to which an asset can be converted to cash quickly, without incurring large transactions costs or price concessions. All else equal, the more marketable an asset, the higher the price an investor will be willing to pay for the asset. The lack of marketability of an asset is costly to investors because it potentially causes the investor to miss opportunities to allocate capital to alternative uses, such as liquidity or portfolio rebalancing.

In this article we review and critique the various methods that appear in the literature and are used in practice to estimate valuation discounts when an asset lacks marketability. We also present findings from our own original empirical research which offer further insights into the estimation of such discounts.

Keywords: Marketability discount, valuation, liquidity discount

JEL Classification: G30

Suggested Citation

Bajaj, Mukesh and Denis, David J. and Ferris, Stephen P. and Sarin, Atulya, Firm Value and Marketability Discounts (Febuary 26, 2001). Available at SSRN: https://ssrn.com/abstract=262198 or http://dx.doi.org/10.2139/ssrn.262198

Mukesh Bajaj (Contact Author)

LECG, LLC ( email )

2000 Powell Street, Suite 600
Emeryville, CA 94608
United States
510-450-6736 (Phone)

University of California, Berkeley - Haas School of Business

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

David J. Denis

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Atulya Sarin

Santa Clara University - Department of Finance ( email )

Leavey School of Business and Administration
Santa Clara, CA 95053
United States
408-554-4953 (Phone)
408-904-4498 (Fax)

HOME PAGE: http://business.scu.edu/asarin

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