Fair Value Disclosure of the Publicly Traded Venture Capital Industry

Abstract

We examine accounting standard ASR 118 mandating the reporting of fair values of investment securities. Using a unique setting, the USA public venture capital (VC) industry, we test whether ASR 118 would be important to investors, or whether relevance would come at the expense of reliability. We examine the relevance and reliability of manager-reported fair value estimates and find that fair value estimates do provide relevant information incremental to historical cost as evidenced by its effect on share value. Moreover, we find that fair value estimates are reliable, based on comparing fair value estimates provided during the last year before the exit to actual cash realized exit price.

Keywords: IFRS, Venture Capital

JEL Classification: M41, G24, M44