Restricted Stock Fair Value Measurement Methods Applicability Research

The global financial crisis triggered by U.S. subprime mortgage crisis had fully exposed all the flaws in the financial market. Especially, the fair value measurement of financial instruments had got a strong focus. Many people believed that the fair value measurement was uncertain, because it was subject to the volatility of financial market, and difficult to accurately measure the value of listed companies. It also made the actual value different from the theoretical value, formed a huge bubble of financial market.Although the fair value is not the direct reason of the financial crisis, but in fact, the deficit of method choice does exist. The large volatility of capital market makes more difficulties in fair value measurement of financial instruments. For example, stock price should be calculated on the basis of net income per share in principle, but actually, the stock transaction price is always several times higher than the net income per share, or even ten times. The methods of fair value measurement of financial instruments can not simply draw on the traditional evaluation methods.In an active market, the fair value of financial instruments could be directly got from the transactions without special measurement methods. However, because of the rapid development and expansion of the financial market in recently years, a large number of financial instruments which can not be freely traded emerge constantly, which makes fair value measurement become very complex. Usually, the fair value of this kind of financial instruments is calculated by complicated formulas, and the accuracy of calculated results must be verified.Those stocks in non-active market can not be traded freely because their liquidity has been limited in capital market. Although their title are not uniform in the academic circles currently, they have the same characteristics, and named "Restricted Stock". They all have quite complex reasons of formation, some are caused by history, or limited within the relevant policies formulated by SEC. The policies restrain the quantity, period and condition of stock translation, in order to stabilize capital market, and avoid the impact on the stock market and stock prices.On the base of summarizing characteristics, restricted stocks will be grouped into three categories in this article according to different characteristics. With the theory of fair value hierarchy, we talk about the methods of fair value measurement of restricted stocks again. In this paper, there are four innovations:first, redefining the connotation of restricted stocks and inducting the three types of restricted stocks; second, the theory of fair value hierarchy can be used in choosing the methods of fair value measurement, as a basis of choosing different methods of fair value measurement of restricted stocks; third, making an evaluation of the methods mentioned in second; fourth, taking the largest proportion of restricted stocks——the initial public offering (IPO) for example, and describing how to get the data of fair value with valuation models and statistical software. We will find the differences through comparing theoretical values with actual values.Because of the complexity of our capital market environment, there are still a lot of theoretical issues need to research. The author thinks, the fair value measurement of restricted stocks will be standardized better in future at the same time of the maturity of our capital market.