Discount For Lack Of Marketability For Non-tradable Shares

The split-share reform began in 2005 in China, and the goal is the non-tradable shares can be freely traded in the stock market. The focus of this reform is how to value the discount for lack of marketability (DLOM) for the non-tradable shares. This paper provides evidence for the valuation of the discount. The sample is from the listed companies finished the reform on 30^th September, 2006. The average DLOM is 25.9% when we use the different methods from the listed companies. But the average DLOM is 45.13% when we use the option pricing method to price the non-tradable shares. The DLOM is 28.49% when the price of the no-tradable shares is as high as 1.5 times of BVPS. The DLOM is 17.91% when the option price is 50% of today's A-shares price. The higher the return of the listed companies, or the larger of the size, or the lower of BVPS, the higher of the DLOM. We do think that we should use the future earnings methods to price the non-tradable shares, especially the option pricing method.