revenues and the size of the restricted stock offering. He
reported the following regression.
where
RPRS=Restrictedstockprice/Unrestrictedstockprice= 1 −
Illiquidity discount
REV = Revenues of the private firm (in millions of dollars)
RBRT=Restrictedblockrelativetototalcommonstock(in
%)
DERN = 1 if earnings are positive; 0 if earnings are negative
DCUST = 1 if there is a customer relationship with the
investor; 0 otherwise
Theilliquidity discount tends to be smaller forfirms with
higherrevenues,decreases astheblockoffering decreases,
andislowerwhenearningsarepositiveandwhentheinvestor
hasacustomerrelationshipwiththefirm.Thesefindingsare
consistentwithsomeofthedeterminantsthatweidentifiedin
theprevioussectionfortheilliquiditydiscount.Inparticular,
thediscountstendtobesmallerforlargerfirms(atleastas
measuredbyrevenues)and forhealthyfirms(with positive
earningsbeingthemeasureoffinancialhealth).This would
suggest that the conventional practice of using constant
discountsacrossprivatefirmsiswrongandthatweshouldbe
adjusting for differences across firms.