Value relevance of proportionate consolidation versus the equity method: Evidence from Hong Kong

Stella H H SO, Kar Shun WONG, Feida (Frank) Zhang*, Xu Zhang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Whether proportionate consolidation (PC) or the equity method (EM) provides more informative financial statements is a controversial issue. This study uses data from listed companies in Hong Kong to investigate the value relevance of the EM compared with PC during 2005–2008 when the local word-for-word equivalent HKAS 31 offered the same options. The results of this study provide evidence that PC does not offer higher value relevance than the EM. PC's horizontal aggregation of a portion of the operations, assets and liabilities of the jointly controlled entities with those of the venturer is less informative to investors than the EM's vertical aggregation.

Original languageEnglish
Pages (from-to)255-278
Number of pages24
JournalChina Journal of Accounting Research
Volume11
Issue number4
DOIs
Publication statusPublished - Dec 2018

Scopus Subject Areas

  • Accounting
  • Finance

User-Defined Keywords

  • Equity method
  • Financial statements
  • Proportional consolidation method
  • Value relevance

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