Consider again the regression that Silber presents on
restrictedstock. Not only doesit yielda resultspecific to
restrictedstock,butitalsoprovidesameasureofhowmuch
lowerthediscountshouldbeasafunctionofrevenues.Afirm
with revenue of $20 million should have an illiquidity
discountthatis1.19percentlowerthanafirmwithrevenues
of $10 million. Thus, we could establish a benchmark
discountfor a profitablefirmwith specified revenues (say
$10 million) and adjust this benchmark discount for
individual firms that haverevenues much higheror lower
than this number. The regression can also be used to
differentiatebetweenprofitableandunprofitablefirms.Figure
14.6 presents the difference in illiquidity discounts across
bothprofitableandunprofitablefirmswithdifferentrevenues,
using abenchmark discount of 25 percent fora firmwith
positive earnings and $10 million in revenues.
FIGURE 14.6 Illiquidity Discounts: Base Discount of 25
Percent for Profitable Firm with $10 Million in Revenues