Research On DLOL Of Restricted Shares Issued By Small And Medium-sized Enterprises Of Shenzhen In Mergers And Acquisitions

As the Mergers&Acquisitions (M&A) market has become increasingly active, more and more listed companies adopt share-based payments in merger and acquisition deals. As all we know, the pricing mechanism of shares in China now do not consider the effect of discount for lack of marketability (DLOM), and block trades discounts, which may worsen the quality of goodwill accounting information. It is of great significance to research the liquidity discount rate of shares in stock market of China.This thesis has mainly focused on the discount for lack of liquidity (DLOL), which includes DLOM and block trading discount of restricted shares that issued by listed companies in M&A trading. We have followed the samples from small and Medium-sized Enterprises of Shenzhen, which had M&A dealings not under common control during recent years.(1) By using Black-Scholes Option Pricing Model, we measured and calculated the rate of restricted shares’DLOM. During this process, we illustrated parameter selection in details, and did the parameter sensitivity analysis as well. Successfully, we calculated out the restricted shares’average DLOM of21.03%with a limit of one year, while an average discount rate of35.79%with three years limited. On a basis of board announcement date, the average DLOM is21.85%or36.97under1year or3years limit.(2) We measured block trades discounts by general discount formulas with block trades samples from Small and Medium-sized Enterprises of Shenzhen. As we studied, the average block trades discount rate turn out to be6.09%, while a discount rate of7.31%on a ban date basis, thus the combined block trades discount rate should be13.40%.Therefore, a comprehensive liquidity discount rate of the restricted shares we observed reaches to32.32%or45.42%under a limited period of1or3years. At the end of the thesis, we pointed out that because of the high DLOL, the regulations of stock trading in M&A make it hard for shares price to reflect its intrinsic value, and came up with several suggestions as references for department concerned to improving the stock price trading system, which make sense to promote the fairness of shares price.