Discounts for Illiquid Shares and Warrants : The Liquistat Database of Transactions on the Restricted Securities Trading Network

Studies of restricted securities private placements have explained the difference between the price of stock sold to private investors and the issuer's contemporaneous stock price in the market with factors such as the information asymmetry between issuer management and buyers, the possible impending financial distress of the issuer, or control and monitoring services provided by the buyers. In this paper, the implications from the LiquiStat database of investor-to-investor trades in restricted securities are explored. The pricing discounts observed in these trades are proposed to be entirely due to the illiquidity of the shares sold. The LiquiStat data also provides evidence of investor preferences with regard to non-traded, illiquid warrants and options. Factors considered possibly related to the magnitude of the discounts are analyzed in the cross-sectional regression model