Determinants of Discounts for Lack of Liquidity in European Developed Markets: the Private Placement Approach

In this paper, we study the determinants that affect the Discount for Lack of Liquidity in European developed markets. To estimate the size of the discount we apply the Restricted Stock and Private Placement Approach. The investigated determinants are divided into four blocks, which form the basis for formulating hypotheses: the main characteristics of a private placement transaction, information on whether the investor is granted any privileges in the private placement transaction, the financial profile of the issuer, the investor's transaction costs for obtaining information about of the value of the issuer. The empirical analysis is carried out on data on 149 transactions of private placements of common shares issued by public companies in the developed markets of Europe, in the period from 2013 to 2017. In this study, the author identifies three, not previously investigated, significant determinants. Thus, it was found that investors are willing to pay for restricted stocks more if the transaction is accompanied by the issue of warrants or a guarantee for representation on the Board of Directors of the issuer. Besides, a discount increase if the issuer's ROIC decrease.