Interest In Joint Venture Research Articles

How financial information about joint ventures is being disclosed and processed by the market

Objective: This research aims to evaluate how the joint ventures’ financial information is being disclosed in the notes to the joint venturer’s financial statements and how this disclosed information is being processed by the market, exploring the mediating effect of investors’ level of sophistication.
 Methods: Using a sample of 1,858 financial statements from 551 firms from 26 countries, we hand collected the financial information of interests in joint ventures from the notes to the financial statements. Using a descriptive analysis, we first analyzed how firms are disclosing this information. Following, using a value relevance model, we evaluated whether this information is incorporated into stock prices.
 Results: We show that IFRS 11 adoption and the elimination of proportionate consolidation resulted in a loss of information given that firms are not disclosing in the notes the financial information of their joint ventures as required by IFRS 12, and, even for those firms that are disclosing (57%), this information is only absorbed by more sophisticated investors.
 Contributions: This research contributes not only to the previous literature (joint ventures’ accounting treatment, disclosure compliance and recognition versus disclosure), but also to the IASB during the Post-Implementation Review (PIR) of IFRS 11/12 and the Disclosure Initiative.

The impact of the adoption of IFRS 11 on the comparability of accounting information

We analyse the impact of the introduction of IFRS 11 on the comparability of accounting information. IFRS 11 eliminated proportionate consolidation as an alternative to accounting for interests in joint ventures. Our sample comprises 2,059 firms with interests in joint ventures from 26 countries over the period 2005–2016. Overall, the comparability of accounting information decreased after the adoption of IFRS 11, but the effect is not uniformly distributed internationally. Further analysis of the information disclosed by the venturers in the notes indicates that the increase in disclosure requirements proposed by IFRS 12 may not fully mitigate the consequences of the elimination of proportionate consolidation in IFRS 11.

Joint venture investments: An analysis of the level of compliance with the disclosure requirements of IFRS 12

AbstractThis study provides empirical evidence on changes in entities’ reporting of interests in joint ventures from proportionate consolidation to the equity method following adoption of IFRS 11 and their application of the corresponding IFRS 12 disclosure requirements. The sample includes 551 firms from 26 countries affected by the adoption of IFRS 11 (1,858 financial statements). The findings indicate that many firms are not fully complying with IFRS 12 disclosure requirements and that firm‐level characteristics (e.g., size, leverage, and ownership concentration) contribute more to explaining the level of (non)compliance, when compared to country‐level variables (e.g., legal system and emerging versus developed countries). We also find that the level of materiality of joint ventures is positively associated with the level of compliance with IFRS 12 disclosure requirements. Our results contribute to the literature on the determinants of compliance with IFRS Standards disclosure requirements and bring important insights for the post‐implementation review of IFRS 11 and IFRS 12 occurring between 2020 and 2022.

Přechod z poměrné metody konsolidace na metodu ekvivalence podle IFRS

Přispěvek se zabýva přechodem vykazovani konsolidovaných ucetnich výkazů pomoci poměrne metody na metodu ekvivalence. Pro ucetni zavěrky, jejichž obdobi zacina dnem 1. 1. 2013 a později, vesel v ucinnost IFRS 11 Spolecna uspořadani, který plně nahradil IAS 31 Ucasti na spolecných podnikanich. IFRS 11 již nedovoluje výběr ze dvou variant a povoluje i pro zobrazeni spolecneho rozhodujiciho vlivu již jen metodu ekvivalence. Spoluovladajici jednotky, ktere do te doby sestavovaly výkazy za skupinu pomoci poměrne konsolidacni metody, jsou nuceny přejit na vykazovani pomoci metody ekvivalence. Cilem přispěvku bylo na ilustrativnim přikladu poskytnout praktický navod transformace těchto výkazů z poměrne metody na metodu ekvivalence v souladu s požadavky IFRS 11 a upozornit na vybrane problemy, ktere se v souvislosti s přechodem mohou objevit.

FPL Group, Inc.

AbstractElectricity (MIC: SIC: 4911 NAIC: 221121)FPL Group is a holding company whose operations are conducted primarily through its wholly‐owned subsidiary Florida Power & Light Company (FPL) and its wholly‐owned indirect subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate‐regulated public utility, supplied electric service to approximately 4.5 million customer accounts throughout most of the east and lower west coasts of Florida, as of Dec 31 2007. FPL Energy invests in independent power projects through both controlled and consolidated entities and non‐controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.

FPL Group, Inc.

AbstractElectricity (MIC: 7.1 SIC: 4911 NAIC: 221121)FPL Group is a holding company whose operations are conducted primarily through its wholly‐owned subsidiary Florida Power & Light Company (FPL) and its wholly‐owned indirect subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate‐regulated public utility, supplied electric service to approximately 4.5 million customer accounts throughout most of the east and lower west coasts of Florida, as of Dec 31 2007. FPL Energy invests in independent power projects through both controlled and consolidated entities and non‐controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.

FPL Group, Inc.

AbstractElectricity (MIC: 7.1 SIC: 4911 NAIC:221121)FPL Group is a holding company whose operations are conducted primarily through its wholly‐owned subsidiary Florida Power & Light Company (FPL) and its wholly‐owned indirect subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate‐regulated public utility, supplies electric service to approximately 4.4 million customer accounts throughout most of the east and lower west coasts of Florida, as of Dec 31 2006. FPL Energy invests in independent power projects through both controlled and consolidated entities and non‐controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.

FPL Group, Inc.

AbstractElectricity (MIC: 7.1 SIC: 4911 NAIC:221121)FPL Group is a holding company whose operations are conducted primarily through its wholly‐owned subsidiary Florida Power & Light Company (FPL) and its wholly‐owned indirect subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate‐regulated public utility, supplies electric service to approximately 4.4 million customer accounts throughout most of the east and lower west coasts of Florida, as of Dec 31 2006. FPL Energy invests in independent power projects through both controlled and consolidated entities and non‐controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.

FPL Group, Inc.

AbstractElectricity (MIC: 7.1 SIC: 4911 NAIC:221121)FPL Group is a holding company whose operations are conducted primarily through its wholly‐owned subsidiary Florida Power & Light Company (FPL) and its wholly‐owned indirect subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate‐regulated public utility, supplies electric service to approximately 4.4 million customer accounts throughout most of the east and lower west coasts of Florida, as of Dec 31 2006. FPL Energy invests in independent power projects through both controlled and consolidated entities and non‐controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.

FPL Group, Inc.

AbstractElectricity (MIC: 7.1 SIC: 4911 NAIC: 221121)FPL Group is a holding company whose operations are conducted primarily through its wholly‐owned subsidiary Florida Power & Light Company (FPL) and its wholly‐owned indirect subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate‐regulated public utility, supplies electric service to approximately 4.4 million customer accounts throughout most of the east and lower west coasts of Florida, as of Dec 31 2006. FPL Energy invests in independent power projects through both controlled and consolidated entities and non‐controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.

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

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.

Czech Mate: Expropriation and Investor Protection in a Converging World

This paper examines the expropriation of a foreign investor by a local partner and the subsequent resolution of that case through international arbitration in favor of the investor. Despite the investor's 99% interest in joint venture, the local partner managed to divert the entire value of the underlying entity for his personal benefit. This clinical examination of an expropriation and its aftermath illustrates the interaction of property and contract rights in a global setting, how corporate control is shaped by geography, and how multinational firms may be advantaged by availing themselves of stronger investor protections than local firms.

Proportional consolidation versus the equity method: A risk measurement perspective on reporting interests in joint ventures

Under Canadian generally accepted accounting principles (GAAP), firms are required to proportionally consolidate joint venture investments, as opposed to the United States where the equity method is used. Using a sample of Canadian firms, this study investigates the relative information content of equity method and proportionally consolidated financial statement amounts for explaining market risk. This is possible for Canadian firms where detailed footnote disclosures permit the calculation of pro forma equity method amounts. The findings are surprising in that whereas proportionally consolidated financial statements are more risk relevant than equity method statements for explaining price volatility, equity method statements are more risk relevant than proportionally consolidated ones for explaining bond ratings. The findings suggest that different market participants use financial statement information differently. The study also finds that failure to disclose disaggregated joint venture accounting amounts, as is the case under US GAAP, masks information that could help market participants assess risk.

Contradictions in land development schemes: the case of joint ventures in Sarawak, Malaysia

Landowners and the private investors often have contradictory interests in joint ventures. Although development planners sometimes believe that government can harmonise these contradictions, state interests in development often lead them to support the interests of private capital. While joint ventures may be useful ways of pooling human, material and financial resources, this article draws on a case study of two pilot joint venture oil palm schemes in Sarawak, Malaysia, to show that the legal construction and administration of native customary land rights generate lower results for landowners than they do for the private sector. Information and power asymmetries constrain the ability of affected natives to realise fair benefits under a joint venture arrangement. When institutional constraints that give a measure of protection to native rights and interests are dismantled in the rush to establish commercial plantations for example, an unregulated market can be detrimental to landowners’ rights and long–term interests.

Proportionate Consolidation vs. the Equity Method: A Decision Usefulness Perspective on Reporting Interests in Joint Ventures

The number of joint ventures, and the number of industries in which joint ventures are commonplace, have expanded considerably over the past twenty years. The prescribed treatment for accounting for interests in joint ventures varies across nations, with some requiring the equity method (e. g., the United States) and some requiring proportionate consolidation (e. g., Canada). A 1999 report by the G4+1 recommends that venturers use the equity method to account for interests in joint ventures, but cautions that there is very little empirical evidence on the decision usefulness of one approach over the other. This paper provides empirical evidence on this question by analyzing the financial statements of Canadian firms reporting joint ventures over the period 1995-2000. Our results show that ratios calculated from proportionately consolidated venturer financial statements are more useful in predicting one-, two- and three-year-ahead return on common shareholders' equity than are ratios calculated from venturer financial statements prepared under the equity method. We conclude that, at least for this set of firms, proportionate consolidation provides information with greater predictive ability and, therefore, greater relevance to financial statement users than does the equity method.

Is joint venture reporting “broken?”

AbstractAPB Opinion No. 18, on reporting interests in joint ventures, is frequently criticized and seldom defended. But are the current rules really “broken?”

Lobbying behaviour and the development of international accounting standards

This paper studies the role of lobbying in an international (i.e., harmonization) accounting standards setting and examines the IASC's process of promulgating International Accounting Standard (IAS) 31, ‘Financial Reporting of Interests in Joint Ventures'. Our study begins with an examination of the Exposure Draft (ED 35, ‘Financial Reporting of Interests in Joint Ventures') preceding IAS 31 and analyses the lobbying efforts observed during the promulgation process. Consistent with prior literature, the paper analyses lobbyists and their lobbying positions. During the time frame of the study (1989 and 1990), the IASC changed its due process, which affords us the opportunity also to analyse the IASC's strategic approach to public input. Accordingly, this study incorporates aspects of institutional theory as it relates to strategic choice by organizations. The comment letters received by the IASC regarding ED 35 were analysed using a form of content analysis. The analyses generally support the hypothesized ...

SDI in japan: Growing interest in joint venture

SDI in japan: Growing interest in joint venture