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Fair Value Measurements of Control Premiums

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  • Wessel M. Badenhorst

Abstract

As the overview of the current state of research within this paper shows, the debate around fair value measurements is far from over. This paper analyzes fair value measurement requirements in a controversial scenario, namely when a control premium exists. The analyses of the paper show that, while measurement rules around control premiums could have a material impact on fair value measurements and the financial statements as a whole, significant fair value measurement issues remain unresolved. The conclusion is that fair value measurements should include or exclude control premiums consistently. It is argued that including control premiums for all fair value measurements is the most faithful representation of the underlying economic phenomenon. This paper contributes to the fair value measurement debate by comparing the merits of alternative fair value measurements for control premiums and highlights an area where researchers, investors, and other users should exercise caution when evaluating financial statements. Résumé Ainsi que le révèle le tableau de l'état actuel de la recherche brossé dans le présent article, le débat entourant les évaluations de la juste valeur est loin d'être clos. L'auteur analyse les impératifs de l'évaluation de la juste valeur dans un scénario sujet à controverse, soit celui qui met en cause une prime de contrôle. Les analyses réalisées dans le cadre de l'étude montrent que, même si les principes d'évaluation applicables en pareilles circonstances peuvent avoir une incidence appréciable sur les évaluations de la juste valeur et sur les états financiers dans leur ensemble, d'importantes questions relatives à l'évaluation de la juste valeur demeurent sans réponse. L'auteur conclut que les évaluations de la juste valeur devraient inclure ou exclure systématiquement les primes de contrôle. L'inclusion des primes de contrôle dans toutes les évaluations de la juste valeur donnerait, estime‐t‐il, la représentation la plus fidèle du phénomène économique sous‐jacent. L'auteur contribue au débat sur l'évaluation de la juste valeur en comparant le bien‐fondé d'autres modes d'évaluation de la juste valeur relativement aux primes de contrôle et met en lumière un domaine dans lequel les chercheurs, les investisseurs et les autres utilisateurs devraient faire preuve de prudence dans l'évaluation des états financiers.

Suggested Citation

  • Wessel M. Badenhorst, 2014. "Fair Value Measurements of Control Premiums," Accounting Perspectives, John Wiley & Sons, vol. 13(3), pages 173-188, September.
    • Handle: RePEc:wly:accper:v:13:y:2014:i:3:p:173-188
    DOI: 10.1111/1911-3838.12030
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    1. Volkova, O., 2018. "Fair Value in Finance: Fifty Shades of Fairness," Journal of the New Economic Association, New Economic Association, vol. 39(3), pages 85-109.

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