51 percentstakeinaprivatebusinessshouldbemoreliquid
than a 49 percent stake in the same business.
67
Theilliquiditydiscountisalsolikelytovaryacrosspotential
buyers because the desire for liquidity varies among
investors.Itislikelythatthosebuyerswhohavedeeppockets
andlongertimehorizonsandseelittleornoneedtocashout
their equity positions will attach much lower illiquidity
discountstovalueforsimilarfirms,thanbuyerswhodonot
possessthesecharacteristics.Theilliquiditydiscountisalso
likely to vary across time, as the marketwide desire for
liquidity ebbs and flows. In other words, the illiquidity
discountattachedtothesamebusinesswillchangeovertime
even for the same buyer.
Estimating Firm-Specific Illiquidity Discount
While it is easy to convince skeptics that the illiquidity
discount should vary across companies, it is much more
difficulttogetconsensusonhowto estimatetheilliquidity
discountforan individualcompany.In this subsection,we
revertbacktothebasisforthefixeddiscountstudiesandlook
forcluesonwhydiscountsvaryacrosscompaniesandhowto
incorporate these differences into illiquidity discounts.
Restricted Stock Studies
Earlierinthechapter,welookedatstudiesofthediscountin
restricted stock. One of the papers that we referenced by
Silber(1991)examinedfactorsthatexplaineddifferencesin
discountsacrossdifferentrestrictedstockbyrelatingthesize
ofthe discountto observablefirmcharacteristicsincluding