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Volume-based liquidity ratios suffer from potential measurement bias due to share restriction and may misrepresent actual liquidity. To address this issue, the authors develop two modified metrics, the free-float liquidity and the alternative free-float illiquidity ratios. These measures are well suited to estimate liquidity in the presence of trading constraints, as can be found in closely held/state-owned entities, IPOs/SEOs with lockup restrictions, dual-class share structures and family-owned businesses.

The authors modify the turnover illiquidity ratio, where the number of outstanding shares is scaled by the public free float, and use natural log transformation to normalize free-float liquidity. Our dataset is composed of daily observations for US stocks included in the S&P 500 index over the 2015–2018 period. To test the validity of free-float (il)liquidity ratios, the authors perform a correlation analysis for various liquidity metrics. To examine their empirical efficiency, the authors employ pooled OLS regression models for family firms as a subsample of liquidity-constrained entities, relying on five different identifiers of family-owned businesses.

The authors’ empirical testing indicates that the proposed free-float (il)liquidity ratios compare favorably with other volume-based methods, such as Amihud's ratio, liquidity ratio and turnover ratio. For the subsample of family organizations as a restricted-share setting, the authors report significant coefficients for our free-float measures across all the family firm identifiers used. In particular, as free-float decreases with progressive family influence, the advanced ratios capture an increase (decrease) in perceived liquidity (illiquidity) that is absent in the other benchmarks.

This study allows the authors to inform the ongoing debate on the management and governance of publicly listed companies with various impediments to trade. Traditional measures understate illiquidity (overstate liquidity) as the fraction of free trading shares is limited by design or circumstances. The authors’ proposed free-float metrics offer informational gains for family leaders to aid in their financing decisions and for non-family outsiders to guide their investment choice. As a constrained free float inhibits price discovery processes, the authors discuss how restricted stock issuers may alleviate the attendant negative effects on governance and information opacity.

The purpose of this paper is to contribute to the literature on secondary equity offerings (SEOs) by examining the impact of the Black Economic Empowerment (BEE) policy on secondary equity offering (SEO) pricing dynamics of South African Real Estate Investment Trusts (REITs).

With a sample of 152 SEOs of South African REITs from 2010 to 2020, ordinary least squares (OLS) models, fixed effect models, parametric and non-parametric tests were applied to test for the impact of BEE on the underpricing of SEOs.

Significant underpricing is discovered in highly compliant (BEE) REITs; in other words, SEOs pricing of BEE compliant REITs are more underpriced compared to non-compliant BEE REITs. With this, BEE compliant REITs and more so, highly compliant BEE REITs in particular leave more money on the table.

The government is therefore aware of the impact policy interventions play when REITs raise financing through SEOS. With these, highly compliant BEE REITs will need to be more strategic when making BEE compliance decisions as this is shown in our study to impact the underpricing of SEOs.

This is the first study to investigate SEO underpricing for the BEE policy using the South African REITs context.