Fair Value Measurement for Private Equities Under the IFRS 13: a Plus or a Minus for Stakeholders?

This paper consists in a field-test of IFRS 13, Fair Value Measurement, on private equities, whose fair value assessment is based on valuation techniques. Its aim is that of offering empirical evidence on the potential economic effects of the application of such a standard in the European Union. Our study consists in a comparison of different valuation techniques that can be used to assess the fair value of a portfolio of private equities. We form a portfolio of 20 equities listed on the stock exchange which we treat as if they are private and evaluate using market multiples, transaction multiples and an option approach. We then compare results one another as well as with their real exit price. Results show that different valuation techniques provide very different fair values which can alter comparison among financial reports, mislead performance analysis and appraisals as well as management choices and compensation. Value creation largely varies depending on the selected valuation technique. Our findings raise some doubts on the reliability of valuation techniques which should provide fair values that faithfully reflect the real world economic phenomena. This issue is particularly critical for market and transaction multiples which are categorised by IFRS 13 within Level 2 inputs as they are supposed to be highly unbiased.