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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As a check for robustness of results to censoring associated with potential bidders avoiding auctions with secret reserves and high minimum bids, we estimated the models for the subsample of auctions with no reserve and a minimum opening bid less than the sample median of $25.
Similarly, secret reserves may inhibit potential bidders, who suspect that the sellers may have unwarranted expectations and the reserve set too high.
Public versus Secret Reserve Prices in eBay Auctions: Results from a Pokemon Field Experiment.
Alternatively, for a sample of Pokemon cards sold by the authors, Katkar and Lucking-Reiley (2000) find that 46% of auctions with a secret reserve result in a sale, whereas 70% of public reserve auctions result in a sale.
In a field experiment, they auction 50 matched pairs of Pokemon cards on eBay, half with secret reserves and half with equally high public minimum bids.
Lucking-Reiley, Vanderbilt University, "Public versus Secret Reserve Prices on eBay Auctions: Results of a Pokemon Field Experiment"
44) Auction houses also use price guarantees and set secret reserves below which they will not sell the object.
The only harm that would come from waiting to disclose secret reserves is that some bidders will not purchase a piece even though they offered more than anyone else for it.
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.