Non-Liquidity Discounts in Stock Price Calculation Using the Income Approach

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The concept of calculating the price of stocks without a trading market can be broadly divided into (1) the income approach, which is calculated from what the issuer will generate in the future (earnings, cash flows, dividends, etc.), (2) the market approach, which is calculated from similar stock transactions, and (3) the net asset approach, which focuses on the net asset value of the issuer. There are two Supreme Court decisions regarding the appropriateness of imliquidity discounts (discounts on the price of shares due to the lack of market liquidity) when adopting a price calculation method based on the concept of (1) (i.e., the DCF method, the earnings return method, or the dividend return method), and there are multiple interpretations of the relationship between these decisions. In the following, we will introduce the cases of the two decisions, a summary of the decisions, and an interpretation of the relationship between these decisions.