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Licensed Unlicensed Requires Authentication Published by De Gruyter August 20, 2010

The Discount for Lack of Marketability in Privately Owned Companies: A Multiples Approach

John K Paglia and Maretno Harjoto

This study investigates a valuation adjustment, known as the discount for lack of marketability (DLOM) for private firms. By matching private company transactions with publicly traded counterparts, we find discounts that average 65-70% and exceed 80% in some sectors of the economy. Our discounts are significantly larger than the DLOM findings estimated from restricted stock, IPO, and acquisition studies. Larger companies, those with positive net income, and firms with lower risk of financial distress exhibit lower DLOMs. Our findings put into question the sizes of discounts typically applied in valuation engagements for privately-held companies.

Published Online: 2010-8-20

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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