Secret Reserve


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Secret Reserve

The amount by which shareholder equity in a company exceeds the amount claimed on its financial statements. Secret reserves arise when a company overstates its liabilities or understates its assets, usually because its accounting practices depart from GAAP. In such cases, the company must declare that its accounting is different from that of most other companies. The secret reserve may eventually be converted to cash and distributed to shareholders. It is also called the hidden reserve.
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Therefore, we hypothesize that bidding activity will be lower when there is a secret reserve.
RESERVE Indicator variable that takes on a value one if the auction has a secret reserve price.
74) Also, many works of art are subject to a secret reserve, and auction houses will frequently say a fictitious buyer bought a work of art that did not meet its reserve.