1. Valuation of unquoted shares National Accounts : Market Value : V Listed companies : V L = Market Capitalization Unlisted companies : V UL : ?  This estimation cannot in general be subjected to empirical validation LIFI (financial links survey)  1. a direct valuation of unlisted shares 2. an improvement of the indirect estimation Which listed companies can be compared to unlisted companies ? Which premium, p, to apply ? F : own funds p : premium (liquidity and profitability) PtB : Price to Book

2. . VABIL: value of the stake recorded on the balance sheet (source LIFI).TxC: rate of control given by this particular link (source LIFI) Validation of valuation by LIFI Construction of the sample Files of financial liaisons from 1994 to 1999 Detection of the year of acquisition acquisition value  market value  elimination of the newly created companies  Estimation possible for 16,000 listed and unlisted companies in the field (non financial firms)  For listed companies this valuation is an unbiased estimator of the capitalization

3. First results PtB : Price to Book F : own funds PtB is decreasing with size (profitability) PtB is higher for listed companies  U – curve

4. Extension to all non-financial unlisted companies… Cluster constructed on the basis of three criteria –Sum of fixed assets –Share of capital assets –Profitability … leads to an average PtB of 1.56 in 1999 The PtB applied in national accounts ranks from 1.33 in 1995 to 3.04 in 1999, a year of high market capitalization

5. 2 – Liquidity premium Which kind of listed companies ? Others 184 3 0 11 3.78 41.6 9.1 TOTAL 672 329 31 1,143 3.47 36.7 9.5 P&S : listed companies on the Primary and Secondary markets that do not figure in the SBF indices PtB of P&S listed companies : closer to that of the unlisted less volatility than other listed

6. P&S listed companies P&S : listed companies on the Primary and Secondary markets that do not figure in the SBF indices P&S companies have an average PtB close to that of unlisted companies but this is purely coincidental because of two opposite factors : listed companies are bigger and profitability decreases with size premium liquidity Companies with share of capital assets in total fixed assets <10%. PER’ = V/EBE REB=EBE/K Own funds bracket

7. The Price Earning Ratio (PER) Pr : Profit d : discount rate p : liquidity premium Profit : Bottom line (Résultat net comptable) in consolidated accounts Theorically : anticipated profits Practically : weighted average of past profits

8. Computation of the profits Pr : Profit BL : Bottom line This computed consolidated result is an unbiased estimator of the published consolidated result 134 listed companies with no foreign affiliate DIV : Dividends Tx : Rate of financial control From : INSEE & COFISEM, 484 non financial listed companies, year = 1999 Profits in the individual accounts of the parent company ignore the reinvested profits of the subsidiaries

9. Results PER for unlisted companies is, controlled for other variables, 4 points below the PER for P&S This leads, for a PER of 16, to a liquidity premium of about 25% (4/16 = 25%)