Events

Prof. Stefan J. Huber
Assistant Professor of Accounting
The Wharton School
The University of Pennsylvania Philadelphia

Private markets have grown substantially in recent years, becoming an increasingly important venue for capital formation. Yet their limited disclosure and decentralized trading raise the question of what information investors rely on and whether that information facilitates trade. Using novel data on secondary-market trades in VC-backed private firms, we study how institutional buyers and other accredited investors transact with insiders in these opaque information environments. Consistent with adverse selection frictions, we document substantial illiquidity and large disconnects between seller and buyer interests. As these firms do not publicly disclose financial statements, investors turn to other public signals to alleviate information asymmetry. These signals include value-relevant news about the firm and its private peers, such as funding rounds news, as well as revenue-related metrics reported in public peers’ financial disclosures. Collectively, our findings show that when firm financial information is scarce, private-market investors rely on other public signals to overcome information frictions and trade in otherwise opaque assets.