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The Value of Private Businesses in the United States

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  • Patrick L Anderson

Abstract

The vast majority of businesses in the United States are privately held, and approximately 99 percent meet a common government definition of “small.” However, we know surprisingly little about the market values of these organizations. In this paper, we estimate the market value of privately held firms in the United States from sources on earnings, assets, and reported market value of multiple forms of business entities, including corporations, partnerships, LLCs, and sole proprietorships. We discuss various theoretical and practical methods of valuing assets, including those arising from economics, neoclassical finance, portfolio theory, and tradition. Concluding that most of them are not appropriate for valuing private firms, we use insights from dynamic programming and ratio analyses from traditional technique to produce a new estimate based on reported taxable earnings, net worth, and tax filing status. Using this approach, we estimate that privately held U.S. firms had earnings that exceeded those of publicly held firms in two recent years by a significant margin. Moreover, the market value of these firms exceeded that of publicly traded firms. We also conclude that policymakers, perhaps grossly, underestimate the true scale of “small” and privately held firms in the economy.Business Economics (2009) 44, 87–108. doi:10.1057/be.2009.4

Suggested Citation

  • Patrick L Anderson, 2009. "The Value of Private Businesses in the United States," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 44(2), pages 87-108.
  • Handle: RePEc:pal:buseco:v:44:y:2009:i:2:p:87-108
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    Cited by:

    1. Thompson, Dave & Booker, Quinton, 2015. "Bank loan officers' perceptions concerning independence, objectivity, and reliability when external auditors also perform tax compliance activities for nonpublic clients," Research in Accounting Regulation, Elsevier, vol. 27(1), pages 14-20.

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