The Bright Side of Fair Value Accounting: Evidence from Private Company Valuation
51 Pages Posted: 21 Sep 2017 Last revised: 7 Dec 2018
Date Written: December 5, 2018
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: Suggested Citation