Agency Problems in Impartial Business Appraisals

Abstract

Finding a mutually satisfactory solution to valuation problems in arbitrational proceedings usually requires the arbitral tribunal in charge to mandate an impartial appraiser. From an agency theory perspective, this valuation expert's role is ambiguous, since on the one hand, the latter serves as an agent in relation to the mandating entity, while on the other hand she is, within the bounds of her assignment, in a principal-like position regarding the valuation targe's management.

The paper at hand analyses agency relationships occurring in a typical impartial business valuation setting. In particular, it studies the appraiser's optimisation problem, and it discusses the mechanisms promoting opportunistic behaviour. By this means, the paper provides a conceptual starting point for future empirical or experimental research on, for instance, ethical, regulatory, or corporate governance issues arising in the impartial valuation services market. The conclusions reached are relevant for mandating entities as well as for regulatory bodies seeking to ensure the integrity of the valuation services market, and underline the necessity of a tight and responsive valuation quality assurance system.

Keywords: agency theory, arbitration, governance, impartial appraiser, valuation

JEL Classification: G28, G30, G34, L20