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

Review of Accounting Studies, forthcoming

52 Pages Posted: 8 May 2020 Last revised: 25 Jan 2022

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia University - 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: January 25, 2021

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 having 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 private target firm M&As 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 firm information is more precise. In total, 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.

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 (January 25, 2021). Review of Accounting Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=3576389 or http://dx.doi.org/10.2139/ssrn.3576389

Thomas Bourveau

Columbia University - 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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