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A new approach to private firm fair value valuation in line with IFRS 13 - the concept of the most advantageous market discount (MAMD)

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  • Mielcarz, Pawel

Abstract

IFRS 13, adopted in 2013, introduced a general framework for fair value valuation of unquoted equity instruments. It has to be performed in line with the “highest and best use” concept and in the conditions of potential transactions carried out on “the most advantageous market”. This article presents a new and comprehensive approach to the valuation process of such instruments, which meets these IFRS 13 requirements. This approach applies a concept of the most advantageous market discount (MAMD), based on the well-known underpricing phenomenon. The application of this discount along with the Markowitz theory results in a cohesive, comprehensive and practical framework for unquoted equity instruments valuation according to the fair value concept compliant with IFRS 13. Additionally, this paper presents estimations of MAMD for the UK, Germany, France, Switzerland, and Poland. The obtained results can help valuation practitioners apply the MAMD concept in the process of unquoted equity instruments valuation according to IFRS 13. Compared to other approaches which address the issue of private company valuation, the presented valuation framework for the first time reconciles the requirements set in IFRS 13 fair value definition with the assumption of valuation in the reality of imperfect markets.

Suggested Citation

  • Mielcarz, Pawel, 2014. "A new approach to private firm fair value valuation in line with IFRS 13 - the concept of the most advantageous market discount (MAMD)," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 10(1), pages 1-7.
  • Handle: RePEc:ags:pdcbeh:245866
    DOI: 10.22004/ag.econ.245866
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    File URL: https://ageconsearch.umn.edu/record/245866/files/201607040539_07_BEH_Vol10_Issue1_2014_Mielcarz_New_approach_to_private_firm_fair_value_valuation_IFRS_pp.79-85.pdf
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    Cited by:

    1. Cozma Ighian Diana, 2015. "Fair Value Measurement Under Ifrs 13," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 55-59, June.
    2. Radosław Pastusiak & Jakub Keller & Michał Radke, 2020. "Marketability Discount in Various Economic Environments. Comparison of Developed and Emerging Markets on the Example of the USA and Poland," JRFM, MDPI, vol. 13(6), pages 1-15, June.

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    Keywords

    Agribusiness;

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