An Experiment in the Economic Consequences of Additional Disclosure: The Case of the Fair Value of Unlisted Equity Investments

Yuan Ding, Thomas Jeanjean, Cédric Lesage and Hervé Stolowy ()
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Cédric Lesage: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: We investigate the economic consequences of additional disclosure about assets with no active market in terms of liquidity, perception of information reliability and relevance. We use an experimental design: 181 MBA students are asked to value 24 investments. We manipulate the level of disclosure on the fair value of assets (Limited versus Full), the perception of expected profit (Gain versus Loss) and the firm's business risk (Low versus High). In the case of Limited (resp. Full) disclosure, participants are given a point estimate for the fair value of the investment (resp. plus a range of possible fair values). We find that in the Full disclosure situation, participants tend to make an offer more frequently, to bid prices lower than the fair value and to earn a lower return on their investments compared to the Limited disclosure case. These consequences vary with the environment (expected profit and risk).

Keywords: fair value; fair value measurement; disclosure; relevance; reliability; risk; SFAS 157; IFRS 7 (search for similar items in EconPapers)
Date: 2009-05-27
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00458950
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Published in La place de la dimension européenne dans la Comptabilité Contrôle Audit, May 2009, Strasbourg, France. pp.CD ROM

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Working Paper: An experiment in the economic consequences of additional disclosure: The case of the Fair Value of Unlisted Equity Investments (2009)
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