BLOCKAGE DISCOUNT Meaning and
Definition
-
Blockage discount refers to a reduction in the market value of a security or asset due to the lack of liquidity caused by a significant amount of the asset being held by one entity or a group of related entities. It occurs when the large ownership position by one shareholder or a few shareholders restricts the ability of other shareholders to easily trade or sell their shares in the open market. The blockage discount primarily occurs when the ownership stake exceeds a certain threshold, which may vary depending on the specific market or asset.
The concept of a blockage discount is often relevant in the valuation of closely held or illiquid investments, such as private equities or large ownership positions in public companies. The discount is typically applied to the current market price or fair value of the security when estimating its value for sale or purchase purposes. This adjustment is necessary to account for the illiquid nature of the investment, which may require a longer time period to find a buyer or complete a transaction compared to the broader market.
Blockage discounts can have a significant impact on the valuation of an asset, particularly for investors or entities that hold a substantial amount of shares or other securities. It is important to consider this factor when estimating the net asset value of a portfolio or when evaluating the potential sale or purchase of a large ownership position.
Etymology of BLOCKAGE DISCOUNT
The term "blockage discount" does not have a specific etymology, as it is a compound word made up of two individual words: "blockage" and "discount". However, we can examine the origins of each word separately:
1. Blockage: The word "blockage" has its roots in the Middle English word "blokage" or "blokkage", which means to obstruct or block. It is derived from the Old French word "blocage" and ultimately from the Middle Dutch word "blokken", meaning "to block". The term has been used in various contexts referring to physical obstructions or hindrances.
2. Discount: The word "discount" comes from the Old French word "desconter", meaning to reckon or count back. It is derived from the Latin words "dis-" (apart) and "computare" (to count).
