An empirical study of the value-relevance of using proportionate consolidation accounting for investments in joint ventures

Stoltzfus, Ronald L.; Epps, Ruth W.

doi:10.1016/j.accfor.2004.10.001

Cited by 27 publications

(21 citation statements)

References 21 publications

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“…They provide evidence of the incremental usefulness of proportionate consolidation (e.g. Graham et al, 2003;Stoltzfus and Epps, 2005;Bauman, 2007) or of the usefulness of additional information provided by venturers about their interests in joint ventures (e.g. Lim et al, 2003;Kothavala, 2003;Bauman, 2003;Soonawalla, 2005;O'Hanlon and Taylor, 2007).…”

Section: Introductionmentioning

confidence: 99%

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Lourenço

Curto

2010

European Accounting Review

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This paper examines whether the type of jointly controlled entity influences the management choice to report interests in this kind of joint venture using the equity method or proportionate consolidation. We address this gap in the accounting choice literature by exploiting the UK setting where, due to the transition to IFRS, firms had to change their reporting method for interests in jointly controlled entities from the gross equity method to a similar approach (equity method) or to proportionate consolidation. We support our analysis on the classification of jointly controlled entities proposed by Hennart (1988). We hypothesize that venturers are more likely to change their reporting method to proportionate consolidation when the majority of their jointly controlled entities are cases of Link instead of Scale cooperation. After controlling for several variables, our results are consistent with the predictions and thus suggest that the type of jointly controlled entity plays an important role in the management decision to report interests in jointly controlled entities using the equity method or proportionate consolidation. However, the results also provide empirical evidence supporting the importance of debt covenant costs and monitoring costs in the choice between alternative reporting methods.

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Section: Introductionmentioning

confidence: 99%

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Lourenço

Curto

2010

European Accounting Review

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“…These differing results are most likely due to homogeneity of the sample firms in the present study. Unlike Stoltzfus and Epps (2005), the results are not altered when guarantees of investee obligations are considered. Overall, these results add to the ongoing debate regarding the usefulness of financial statements prepared under alternative methods of accounting for significant influence equity investments.…”

Section: Introductionmentioning

confidence: 47%

“…Using a sample of Canadian firms, Kothavala (2003) finds that equity method statements are more relevant for bond ratings than are proportionately consolidated statements. Stoltzfus and Epps (2005) find that financial statements prepared under proportionate consolidation are more strongly associated with bond risk premiums than equity method statements only for firms that guarantee the debt of joint venture investments.…”

Section: Introductionmentioning

confidence: 95%

Proportionate consolidation versus the equity method: Additional evidence on the association with bond ratings

Bauman

2007

International Review of Financial Analysis

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“…ese studies suggest that proportionate consolidation provides information with greater predictive power (Graham et al, 2003), more relevant to bond risk premiums (Stoltzfus & Epps, 2005) and to explain the bond ratings (Bauman, 2007), with greater predictability of future earnings and higher relevance (Soonawalla, 2006). e degree of this controversy can be measured by the number of comment letters sent in response to the Exposure Dra 09 -Joint Arrangements.…”

Section: Introductionmentioning

confidence: 99%

“…A er all, countries such as France, the Netherlands, Spain, Sweden, Switzerland, Brazil, and Canada defended the approach of proportionate consolidation (Furuta, 2005, Santos, 2011, Sarraz, 2015, Souza, Tavares, Anjos & Lopes, 2015. In addition, part of academic research does not support the IASB's decision to eliminate proportionate consolidation, since they argue that this method produces information of greater relevance to the user (Bauman, 2007;Betancourt & Barril, 2013;Soonawalla, 2006;Stoltzfus & Epps, 2005).…”

Section: Introductionmentioning

confidence: 99%

Impacts of the elimination of the proportionate consolidation on Itaúsa financial statements

Sarquis

Santos

2018

Rev. contab. finanç.

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ABSTRACTis research aims to evaluate the impacts of the elimination of the proportionate consolidation method to recognize joint ventures investments, with the adoption of the Technical Pronouncement CPC 19 (R2), on the accounting amounts reported by Itaúsa -Investimentos Itaú S.A., and identify which accounting adjustments are necessary to explain the di erences in reported amounts. Until December 31, 2012, there were two methods to recognize these investments: proportionate consolidation and equity method. e adoption of CPC 19 (R2), from January 1, 2013, brought relevant changes and the elimination of the proportionate consolidation method was the most controversial one. ere are many users and researchers that argue that this method provides more relevant information. e e ects of this change, with signi cant impacts on the amounts reported by the joint venturer rm, were even more relevant in Brazil, since almost all Brazilian rms used the proportionate consolidation. It was chosen the case of Itaúsa and, consequently, of Itaú Unibanco Holding because this is the largest private group in Brazil and represents a relevant investment for its joint venturers. e analyses indicated that the total asset reported by Itaúsa using proportionate consolidation was 832% higher than the value reported by the equity method. For liabilities and revenues, this percentage was even higher: 5,096% and 17,771%, respectively. is impact a ects nancial indicators, industry rankings, and other nancial analyses. For example, the debt indicator decreased from 91% to 16%, when the accounting method was changed to the equity method. e analyses also indicated a set of accounting adjustments that explain the di erences in the accounting amounts reported by Itaúsa, and these adjustments are beyond the recognition of the proportionate amounts of joint ventures, including goodwill, unrealized intercompany results, among others. e main contribution of this research is to discuss the relevance of CPC 19 (R2) to the Brazilian market and its consequences for the largest private group in Brazil.

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An empirical study of the value-relevance of using proportionate consolidation accounting for investments in joint ventures

Cited by 27 publications

References 21 publications

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Proportionate consolidation versus the equity method: Additional evidence on the association with bond ratings

Impacts of the elimination of the proportionate consolidation on Itaúsa financial statements

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