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Public peers, accounting comparability, and value relevance of private firms’ financial reporting

Author

Listed:
  • Thomas Bourveau

    (Columbia University)

  • Jason V. Chen

    (University of Illinois at Chicago)

  • Ferdinand Elfers

    (Erasmus University Rotterdam)

  • Jochen Pierk

    (Erasmus University Rotterdam)

Abstract

We examine whether higher accounting comparability between public and private firms leads to higher value relevance of private firms’ reported financial information. To help develop our hypotheses, we conduct a series of interviews with M&A valuation experts. The experts indicate that comparable accounting between public and private firms allows them to apply public firms’ valuation multiples directly to private firms, which facilitates the use of private firms’ financial reporting in their valuations. Using a large sample of M&A transactions with private target firms in the European Union around the mandatory adoption of IFRS by public firms, we find that private firms’ reported financial information has higher value relevance when it has higher accounting comparability to that of public firms. Furthermore, we find that the impact of accounting comparability is stronger when public peer information is more precise. Our findings are consistent with higher accounting comparability facilitating a spillover of valuation information from public to private markets, which leads to greater value relevance of private firms’ reported financial information.

Suggested Citation

  • Thomas Bourveau & Jason V. Chen & Ferdinand Elfers & Jochen Pierk, 2023. "Public peers, accounting comparability, and value relevance of private firms’ financial reporting," Review of Accounting Studies, Springer, vol. 28(4), pages 2642-2676, December.
    • Handle: RePEc:spr:reaccs:v:28:y:2023:i:4:d:10.1007_s11142-022-09707-y
    DOI: 10.1007/s11142-022-09707-y
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    More about this item

    Keywords

    Value relevance; Private firms; Information spillovers; Comparability;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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