Public Peers, Accounting Comparability, and Value Relevance of Private Firms’ Financial Reporting

47 Pages Posted: 8 May 2020

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation

Jason V. Chen

University of Illinois at Chicago

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Jochen Pierk

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: April 15, 2020

Abstract

We examine whether higher accounting comparability between public and private firms facilitates the valuation of private firms and, in particular, impacts the value relevance of private firms’ financial reporting in M&A transactions. To help develop our hypotheses, we conduct a series of interviews with M&A valuation experts to obtain insights on the private firm valuation process. Using a large sample of private target firm M&As in the European Union, we predict and find that the financial reporting of private firms that follow the same accounting standards as public firms has higher value relevance. This relation is more pronounced for private firms in industries with more public companies. Furthermore, our analysis around the mandatory adoption of IFRS by public companies suggests that private firms that do not adopt the new public standard show a decrease in the value relevance of their reporting. These findings are consistent with higher accounting comparability facilitating a spillover of valuation information from public to private markets.

Keywords: value relevance, private firms, spillovers, comparability

JEL Classification: M40, M41, G30, G34

Suggested Citation

Bourveau, Thomas and Chen, Jason V. and Elfers, Ferdinand and Pierk, Jochen, Public Peers, Accounting Comparability, and Value Relevance of Private Firms’ Financial Reporting (April 15, 2020). Available at SSRN: https://ssrn.com/abstract=3576389 or http://dx.doi.org/10.2139/ssrn.3576389

Thomas Bourveau

Columbia Business School - Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Jason V. Chen

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Jochen Pierk (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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