PRINT THIS PAGE Industry Illiquidity Discounts Report: December 200624/01/2007. Source: Valmetrics. 
Liquidity, says Valmetrics, is a key differentiating factor between public and private equity: listed companies have some liquidity whereas privately held businesses have a serious lack of liquidity. Being less liquid, private companies bear a higher risk. Therefore, their market-based valuation must be adjusted (discounted) to take this risk into account. The data displayed in the IIDR intends to help analysts adjust their market-based private equity valuations rationally and consistently. The goal of this report is not to prove or explain the existence of a positive relationship between illiquidity and stock return or between illiquidity and valuation (higher illiquidity, lower value). This relationship has been demonstrated in various research papers such as Amihud 2002, Chalmers and Kadlec 1998, Eleswarapu 1997, Brennan and Subrahmanyam 1996, etc.
Nor are we attempting to provide a foolproof methodology to find uncontested illiquidity discounts for private equity valuation (see possible bias in the appendices section). Rather, Valmetrics aims at offering a tool to approximate - on a consistent and objective basis - fair illiquidity discounts.
How large should the illiquidity discount be (20%, 30%, etc.)? Little is known on the subject and most of the time analysts cannot answer this question with certainty. Consequently they rely on their subjective judgment when it comes to applying a discount related to illiquidity.
Conversely, Valmetrics tries to answer this question rationally through a statistical approach. You will find results of this approach for 59 industries in this report. It is a first step toward a robust illiquidity discount tool.
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Valmetrics is a Swiss-based corporation delivering comprehensive and authoritative financial metrics for business valuation without incurring extensive costs in time and effort. Valmetrics’ clients include investment funds, banks, consultants, private investors or entrepreneurs who require objective and well-founded valuations for either private or public companies having limited liquidity. To know more about us, visit our website www.valmetrics.com.
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