The discount for lack of marketability term structure

Abstract

I empirically estimate a discount for lack of marketability (DLOM) term structure for restriction periods up to 10 years. I model the multi‐year DLOM by annually compounding the 1‐year DLOM plus a term premium over the restriction period. I fit the model to a sample of 5,333 private equity placement implied DLOMs between 1985 and 2017. I estimate different DLOM term structures for the last and earlier pre‐initial public offering (IPO) private equity transactions. DLOM term structures exhibit level, slope, and curvature shifts similar to an interest rate term structure.