Faculty Publications

Proportionate Consolidation Versus The Equity Method: Additional Evidence On The Association With Bond Ratings

Document Type

Article

Keywords

Accounting methods, Bond ratings

Journal/Book/Conference Title

International Review of Financial Analysis

Volume

16

Issue

5

First Page

496

Last Page

507

Abstract

From a financial analysis perspective, proportionate consolidation of significant influence equity investments is often presumed to provide more useful information than equity method accounting. Surprisingly, Kothavala [Kothavala, K., 2003, Proportional consolidation versus the equity method: A risk measurement perspective on reporting interests in joint ventures, Journal of Accounting and Public Policy 22, 517-538.] finds that financial statement measures based on the equity method are more relevant for bond ratings than are similar measures based on proportionate consolidation. This study provides additional evidence regarding this issue. Using a sample of manufacturing firms with significant influence equity investments accounted for under U.S. GAAP, the results indicate that pro forma proportionately consolidated financial statements have greater relevance than equity method statements for explaining bond ratings. © 2007 Elsevier Inc. All rights reserved.

Department

Department of Accounting

Original Publication Date

11-28-2007

DOI of published version

10.1016/j.irfa.2007.06.005

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