A significant role of forensic accountants is valuing privately held companies (Domino, Stradiot and Webinger 2015; Trugman 2017; Allee, Erickson, Esplin and Yohn 2020). This study examines the role of private company transaction features on the composition of capitalization rates, industry risk premiums, and company-specific risks for private companies. We find that company-specific risk accounts for at least 50 percent of the capitalization rate. Further, while the industry risk premium represents less than 2 percent of the capitalization rate, it is significantly associated with company-specific risk, suggesting that industry risk is an important determinant of company-specific risk. Finally, we find evidence that several private company transaction features are associated with company-specific risk. These findings represent an important step in understanding capitalization rates and company-specific risk for private company valuation. These findings should also help practitioners and academics better determine the cost of capital for private companies.

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