Discounting Restricted Securities

64 Pages Posted: 5 May 2021

See all articles by Tarik Umar

Tarik Umar

Rice University

Emmanuel Yimfor

University of Michigan, Stephen M. Ross School of Business

Rustam Zufarov

University of Illinois at Chicago

Date Written: March 23, 2020

Abstract

We examine the costs of trading restrictions by exploiting an SEC rule change eliminating an ~80-day restriction period in private placements for small issuers. Using a difference-in-differences specification, we find that the restriction is binding, as dollar volume increases 19 percentage points vis-à-vis proceeds, and costly, as offering discounts fall by eight percentage points. Discounts fall more for issuers with higher information asymmetry or longer restriction periods. We account for endogenous responses to the rule change. Overall, our findings suggest that trading restrictions are costly and have large effects on firms’ cost of capital.

Keywords: Trading restrictions, marketability, offering discounts

JEL Classification: G30, G32, G12

Suggested Citation

Umar, Tarik and Yimfor, Emmanuel and Zufarov, Rustam, Discounting Restricted Securities (March 23, 2020). Available at SSRN: https://ssrn.com/abstract=3559536 or http://dx.doi.org/10.2139/ssrn.3559536

Tarik Umar (Contact Author)

Rice University ( email )

Houston, TX
United States

HOME PAGE: http://https://business.rice.edu/person/tarik-umar

Emmanuel Yimfor

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States

Rustam Zufarov

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

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