The Bright Side of Fair Value Accounting: Evidence from Private Company Valuation

51 Pages Posted: 21 Sep 2017 Last revised: 7 Dec 2018

See all articles by Nicholas Crain

Nicholas Crain

University of Melbourne - Department of Finance

Kelvin Law

Nanyang Business School, Nanyang Technological University

Date Written: December 5, 2018

Abstract

Using proprietary valuations from a large sample of international private equity managers, we examine how the use of fair value accounting improves the valuation of private companies. We find that the use of fair value accounting reduces valuation bias and increases valuation accuracy. These improvements are especially salient for the valuation of outperforming and mature private companies. Our findings provide novel evidence that fair value accounting improves the usefulness of financial reporting even in settings where valuations are subjective and unverifiable.

Keywords: Fair Value; Private Equity; Valuation; Private Company

JEL Classification: G11; G24; G32; M41

Suggested Citation

Crain, Nicholas and Law, Kelvin, The Bright Side of Fair Value Accounting: Evidence from Private Company Valuation (December 5, 2018). Available at SSRN: https://ssrn.com/abstract=3040396 or http://dx.doi.org/10.2139/ssrn.3040396

Nicholas Crain

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Kelvin Law (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
386
Abstract Views
2,450
rank
94,650
PlumX Metrics