Study On The Valuation Of Restricted Stock Of Listed Companies In China

Among the stock market in our country, there exist two kinds of stocks: tradable stock and nontradable stock. The former usually called outstanding shares can be traded freely in the stock market while the latter is restricted stock that cannot trade due to the restricted period and proportion. Different from the international stock market, restricted stocks in China are divided into two types: reformed restricted stock and new restricted stock. Reformed stock is transferred from the non-tradable stock through the reform of the shareholder structure. The latter comes with the initial public offerings whose restricted period of the shares is regulated by Company Law of the People’s Republic of China and Rule of the Exchange as well. As the development of capital market in China, new restricted stock is going to account for more proportions. However, the two kinds of restricted stocks are both employed by listed companies at present in China and they have enjoyed a substantial proportion. With the development of domestic capital market, the business activities of listed companies, such as transfer, mortgage, equity incentive, merger and acquisition and the need of financial reports, thus make the valuation of the restricted stocks more and more useful and of great significance in theory and practice.At present, the study of the valuation of restricted stock in china is immature and with a relative lack of practice. Hereby, this paper is to study how the lack of liquidity and block trade influence restricted stock’s value from the aspects of the main differences between outstanding stock and restricted stock. Then try to assess the value of restricted stock through indirectly method of adjusting the difference in average transaction prices of outstanding stock. This paper focuses on analyzing how the lack of liquidity discounts the value of restricted stock, and introduces the factors contributing to the rate of lack liquidity discount. The paper innovatively uses the idea of option pricing method to value the discount rate. What’s more, this paper works out the average discount rate of block trade by statistics and analysis on real cases in the market. Then, adjust the average outstandfing trade price by the rate of lack liquidity discount and the rate of block trade discount to figure out the value of restricted stock. In the end, this paper puts this new evaluate method into practice to test its feasibility.