Abstract:
Equity accounting is a controversial accounting treatment. Although fair
value measurement represents a potential alternative measurement base, information
content may be lost under a pure fair value measurement approach. This study
investigates the value-relevance of equity accounted carrying amounts and disclosed
fair values of listed associates, using a sample of the largest firms listed in South
Africa, Australia and the United Kingdom. The main finding is that the alternative
measurement bases are incrementally value-relevant during the sample period of
31 December 2005 to 31 December 2011, implying that equity investors do not blindly
accept either measurement base. Rather, investors include their own assessment of the
intrinsic value of an entity’s listed associates in their valuations.
