Working paper will be posted soon.
Abstract: The pricing of illiquidity (due to lack of marketability) is a contentious issue in Private Investments in Public Equity (PIPEs). We exploit the 2008 amendment to Rule 144(k) to estimate the effect of the shortening of the mandatory holding period on the discount for lack of marketability (DLOM). The annualized inferred DLOM is 3-4%. The DLOM can be larger when marketability is a greater concern. Our paper also contributes to the PIPE performance puzzle (Hertzel et al., 2002). While non-participating investors in PIPE companies incur significant losses post-PIPE, participating investors purchasing stock privately at a discount earn a zero-abnormal return over the expected illiquidity period. Our results support the hypothesis that PIPE investors are able to negotiate discounts commensurate with the expected underperformance of PIPEs companies.