Barbora Rýdlová, The Macrotheme Review 2(5), Fall 2013 1 The Macrotheme Review A multidisciplinary journal of global macro trends Czech Business Valuation Standard Proposal: Discounts and Premiums Barbora Rýdlová University of Economics Prague, Czech Republic, Department of Business Valuation and Corporate Finance brydlova@gmail.com Abstract The objective of our research is to prepare national standards for business valuation that would correspond with the Czech legal background as well as the specifics of the market and it´s structure. If these standards were generally accepted it could help to raise the quality of business valuation reports, lower the variance in resulting value estimates and it could be a useful support for business valuers who testify for example at minority shareholder or marital dissolutions law suites. This paper as a result of our research presents a proposal of Discounts and Premiums national standard for business valuation with added reasoning where necessary. Due to illiquidity of most of the Czech companies or stocks the estimation of illiquidity discount is one of the most objected parts of valuation reports. Minority discount (control premium) is a similar case. The standard proposal does not contain an exact way how to calculate these but it contains terminology, recommendations in which cases the discounts and premiums should be incorporated in the valuation as well as the factors that should be taken into account when estimating the value of a discount or premium and what the valuation report should contain. Keywords: business valuation, standard, discount, premium 1. Introduction Business Valuation in the Czech Republic has a 20 year history which started with the political changes from communistic to market oriented economy. New markets for companies have been created or re-opened (Prague Stock Exchange - PSE). For many years the PSE was very illiquid. Most of the stocks that were listed there were thinly traded. Stocks traded at the main market – SPAD were the only exception but today the number reaches only 15. The need for business valuation arose and in the same time. We were missing both the empirical evidence of the market prices close to the market value of the stocks, and the history and knowledge of business valuation. It was a new economic area and the start was rather unrestrained. As a result many business valuation specialists created their own approaches. They formed solutions for specific problems in business valuation, such as specific risk premiums when estimating a discount rate; relation between the purpose of valuation and the standard of value as well as the discounts and premiums. This situation resulted in big variance in the estimated company values. The problem