Legal Professionals Judging Business Valuations and Valuators: The Role of Similarity, Outcome and Gender bias.

Abstract

In business, many disputes between stakeholders revolve around conflicting views on a business’ valuation (i.e., the present value of a company’s future earnings as determined by a valuator). Consequently, legal professionals are frequently confronted with complex valuation issues. Ideally, these professionals judge valuations solely on the basis of the correct application of the selected valuation method. However, legal professionals are generally not trained to judge an economic valuation on its mathematical and methodological soundness. Therefore, the present experimental study (N = 272) investigates which factors might influence legal professionals’ opinions concerning valuations and valuators. We demonstrate that legal professionals’ judgments of valuations and valuators are affected by (1) the degree of perceived similarity with the valuator (i.e., similarity bias) in the sense that the higher the perceived similarity the more positive the evaluations, (2) the outcome of a deal (i.e., outcome bias) in the sense that valuators are perceived more negatively after a bad deal, and (3) the valuator’s gender (i.e., gender bias) in the sense that male legal professionals have more trust in the ability of a male valuator than that of a female valuator. Implications for theory and legal practice are discussed