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Feb 1, 2008 12:00 PM
Lack of Marketability
There is no doubt that one of the most difficult areas of valuation is quantifying and justifying a lack of marketability adjustment. While it is undisputable that some downward adjustment is justified to account for a lack of ability to convert an investment into cash, the magnitude of that adjustment is often a contentious subject. Valuation professionals are being challenged to refine their conclusions. Practitioners and users of valuation reports should be familiar with the latest thinking on marketability and illiquidity. Here is a start.
To know where we are now, we need to know from whence we have come. Z. Christopher Mercer and Travis W. Harms offer an excellent historical analysis. In their December 2001 article in Business Valuation Review, Mercer and Harms note that “everyone is finally agreeing that the average of a restricted stock study tells us little about the appropriate marketability discounts for the varying fact patterns presented by minority interests in private companies.”
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| 2010 Tax Act News | Industry Trends Surveys |
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