A Study on Related Issues of Fair Value Measurement
Date Issued
2012
Date
2012
Author(s)
Wu, Ya-Wen
Abstract
International Financial Reporting Standards (IFRS) emphasis on fair value accounting, which IFRS9 “Financial Instruments” requires financial assets shall be recorded at fair value. In the past, accounting for unlisted stocks is based on historical cost due to lack of market prices as a measure of foundation. Therefore, how to assess the fair value of unlisted stock is a big challenge that companies is facing. Other things being equal, unlisted stock prices should be lower than listed stocks due to lack of liquidity. Past traditional methods of evaluation are only applicable to evaluation the asset in active markets, so valuing of unlisted stock required to adjust the liquidity discount.
This thesis uses the“restricted stock approach”to measure the liquidity discount and use regression model to investigate related factors that affet liquidity discount. Samples are collected from Taiwan’s listed, OTC, emerging companies who has raised fund from private placement. The regression model results can be applied to evaluate liquidity discount adjustment for the non-listed companies. The results showed that the financial performance, operational risk, the type of trading market, company size, company age, and corporate governance are important factors to affect the discount. Literature indicates that there are some problems with the restricted stock approach. So this study further uses six Taiwan non-listed and OTC companies to verify the rationality of this model. The verification mothod is to use discounted free-cash flow method and market-based approach to assess these companies’ theoretical price, its price has been to adjust the liquidity discount of this model calculation, and finally will be evaluated from the theoretical and the market prices for comparison. Though the causes of price differences can’t be clearly identified and attribution, results indicates part of the company the theoretical price and the market price is closer after adjusting the liquidity discount.So investors should consider the impact of liquidity on the value in assessing the value of the unlisted companies. The results of this study can be used as reference of valuation of unlisted companies in the future.
Subjects
IFRS
fair value
unlisted stocks
restricted stock approach
liquidity discount
Type
thesis
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