Discounts On Illiquid Stocks: Evidence From China

摘要: This paper provides evidence on the significant impact of illiquidity or non-marketability security valuation. A typical listed company in China has several types share outstanding: (i) common shares that are only tradable stock exchanges, (ii) restricted institutional (RIS) not and can be tansferred privately through irregularly scheduled auctions, (iii) state transferable privately. These indentical every aspect, except market regulations make RIS almost totally illiquid. Our analysis focuses price differences between same company, using both auction private-transfer transactions for shares. Among our findings, average discount relative to their floating counterpart is 77.93% 85.59%, respectively based private transfers. The thus high, significantly raising cost equity capital. increases with shares' volatility firm's debt/ ratio, but decreases firm size, return equity, book/price earnings/price ratios (based price). However, either increase decrease quantity being transacted, depending whether it a placement an auction.