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

Stella So; Kar Shun Wong; Feida (Frank) Zhang; Xu Zhang

doi:10.1016/j.cjar.2018.06.002

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

Stella So, Kar Shun Wong, Feida (Frank) Zhang^*, Xu Zhang

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

3 Citations (Scopus)

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 language	English
Pages (from-to)	255-278
Number of pages	24
Journal	China Journal of Accounting Research
Volume	11
Issue number	4
DOIs	https://doi.org/10.1016/j.cjar.2018.06.002
Publication status	Published - Dec 2018

Scopus Subject Areas

Accounting
Finance

User-Defined Keywords

Equity method
Financial statements
Proportional consolidation method
Value relevance

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10.1016/j.cjar.2018.06.002

Cite this

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title = "Value relevance of proportionate consolidation versus the equity method: Evidence from Hong Kong",

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.",

keywords = "Equity method, Financial statements, Proportional consolidation method, Value relevance",

author = "Stella So and Wong, {Kar Shun} and Zhang, {Feida (Frank)} and Xu Zhang",

note = "Funding Information: We thank Xijia Su (the editor) and Wenfeng Wang (the discussant) for their helpful comments. Feida (Frank) Zhang acknowledges research funding from the National Natural Science Foundation of China (project number: 71790603, 71302036, 71332004) ",

year = "2018",

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doi = "10.1016/j.cjar.2018.06.002",

language = "English",

volume = "11",

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TY - JOUR

T1 - Value relevance of proportionate consolidation versus the equity method

T2 - Evidence from Hong Kong

AU - So, Stella

AU - Wong, Kar Shun

AU - Zhang, Feida (Frank)

AU - Zhang, Xu

N1 - Funding Information: We thank Xijia Su (the editor) and Wenfeng Wang (the discussant) for their helpful comments. Feida (Frank) Zhang acknowledges research funding from the National Natural Science Foundation of China (project number: 71790603, 71302036, 71332004)

PY - 2018/12

Y1 - 2018/12

N2 - 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.

AB - 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.

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KW - Financial statements

KW - Proportional consolidation method

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DO - 10.1016/j.cjar.2018.06.002

M3 - Journal article

AN - SCOPUS:85052829424

SN - 1755-3091

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JO - China Journal of Accounting Research

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

Abstract

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