The Valuation of High-growth Start-up Companies: The Role of Management Accounting Systems

This paper examines the role of management accounting systems (MASs) in the valuation of highgrowth start-up companies. Start-up companies face acute problems of information asymmetry and agency conflicts between founder-manager and external investors that can lead to significant financing frictions and valuation distortions. We postulate that adoption of MASs has a positive impact on firm value as they facilitate monitoring of firms’ activities and thereby alleviate investors’ concerns of agency conflicts. MASs are also expected to mitigate information asymmetries by signaling firm value and future growth potentials to external investors. Using an international sample of venture capital investments in start-up companies, we find that MASs are value relevant. Furthermore, the valuation implication of MASs is more pronounced for larger firms and for firms operating in highly competitive environment.