are also closely held. Thus, the discounts estimated from
these small samples have to be considered with caution.
Initial Public Offerings
Analternativewayofcomputingtheilliquiditydiscountisto
compare the initial public offering (IPO) stock prices of
companiestothepricesontransactionsinvolvingthesesame
sharespriortotheinitialpublicoffering.Thedifference,itis
argued,canbe viewedasa discountforilliquidity. Emory
(1997) compared stock prices in transactions in the five
months prior to an IPO to the IPO price and reported a
discountofabout 45 percentforprivateofferings.Figure14.4
reports the discount and the sample size by year.
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FIGURE 14.4Discount on IPOs
Source:Emory (1997).