A comparison of alternative approaches Journal of Finance and Accountancy Page 2 A COMPARISON OF ALTERNATIVE APPROACHES TO EQUITY VALUATION OF PRIVATELY HELD ENTREPREURIAL FIRMS

Valuation of small entrepreurial businesses requires identifying features that are not generally considered in the valuation model of large public firms. The challenge is to translate financial theory into a practical, available measure that can be employed as a proxy for valuation of small and entrepreneurial businesses, which are not publicly traded. This paper seeks to expand the list of valuation metrics for estimating the value of non-publicly traded firms by incorporating empirically determined explanatory factors to examine the relationship of performance measures and the value of the firm. A natural byproduct of the research effort will be the empirical examination and quantification of the factors that determine a private firm’s discount to publicly traded companies due to the lack of marketability and liquidity. A linear cross-sectional regression analysis was employed to extract idiosyncratic value factors for over 5,000 companies included in the database. The results of this study provide strong support for future research to identify a broader range of explanatory financial variables to determine firm value for all non-publicly traded firms. Additionally, the results of this study can be used in price discovery by entrepreneurs, investors, advisors, litigation expert witnesses and business owners that are considering a business purchase or sale