What is a Discoaunt for Lack of Marketability?
Valuing stock in a private company requires assessing the degree of marketability (liquidity) of the shares in question. Unlike public company securities that have a liquid and ready market and are convertible to cash within a few days, most closely held stock has an absence of marketability. A lack of liquidity increases an investor’s required rate of return because it either increases the holding period of the investment (and therefore exposure to changing market conditions) or the cost to convert it to cash or both. Research supports the view that lack of liquidity of privately held securities has a significant impact on value. An ownership interest is not simply marketable or non-marketable (liquid or illiquid). There are degrees of marketability and the appropriate Discount for Lack of Marketability (DLOM) will depend on the facts and circumstances affecting the specific interest being valued and requires careful study.
Related Questions
- Does the Valuation Advisors Lack of Marketability Discount Study™ allow for earnings growth between the time of the "transaction" and the IPO?
- Does the Valuation Advisors Lack of Marketability Discount Study exclude or include insider pre-IPO transactions?
- What is a Discount for Lack of Marketability?
