Behavioral Economics Commons^™

There Should Be Little Or No Liquidity Discounts For Controlling Interests In Closely Held Businesses, Michael Sack Elmaleh

Michael Sack Elmaleh

The application of liquidity discounts to the appraised values of controlling interests in closely held businesses reflects a failure of the valuation community to fully appreciate the fact that these equity interests belong to a fundamentally different investment class than publicly traded securities. Investors in publicly traded securities have dramatically different expectations about the benefits and sacrifices of such investments, compared to the expectations of benefits and sacrifices of investors in closely held companies. Investors in publicly traded securities expect their minority interest investments to be highly liquid, yield free cash flow, and require no participation in the management of …