Equity accounting adoption in regulated and unregulated settings: an empirical study

Abstract

This article investigates equity accounting adoption in regulated and unregulated settings. Equity accounting 1 is a controversial accounting method. As Nobes (2002) recently pointed out, the method is conceptually flawed; yet it has survived R ichard D. M orris (richard.morris@unsw.edu.au) is an Associate Professor of Accounting at the University of New South Wales and I sabel G ordon a Lecturer in Accounting at The University of Sydney. We acknowledge the helpful comments of reviewers and seminar participants at the Universities of New South Wales, Queensland, Southern Queensland, Sydney, and Queensland University of Technology.1 The article is restricted to equity accounting of investments in associates, even though the method has also been applied to incorporated joint ventures. Associates are investees over which an investor has significant influence but not control. An equity holding between 20 per cent and 50 per cent in the investee usually indicates significant influence, although other factors are also relevant.

Determinantes de la discrecionalidad directiva en la elección del método contable de las participaciones en negocios conjuntos

“…Estos resultados permiten confi rmar la hipótesis H3, que las empresas con mayor endeudamiento son menos proclives a utilizar IP. Estos resultados son consistentes con los de Mora y Rees (1996, Morris y Gordon (2006) y Bohren y Haug (2006).…”

“…Esta hipótesis ha sido frecuentemente considerada en los trabajos sobre elección del método contable para las asociadas, PE en lugar de coste (Mazay et al, 1993;Zimmer, 1994;Morris y Gordon, 2006;Bohren y Haug, 2006). En todos ellos, a excepción de Mazay et al (1993), el endeudamiento es un aspecto clave en la decisión.…”

An Empirical Evaluation of Investment Income under the Equity Method of Accounting

“…The second examines determinants of the adoption (or non‐adoption) of the equity method, including economic and opportunistic motives (Ferris and Taylor ; Mazay et al. ; Zimmer ; Haug and Bøhren ; Morris and Gordon ). So far, there has been little compelling evidence on the latter motive.…”

“…To test Hypothesis 1 (firms with core earnings decline are more likely to engage in equity method investments than those with core earnings growth), based on Morris and Gordon () and Lee et al. (), we estimated the following probit model: …”

“…Our study further points out that the relevance could be due to the investors' functional fixation on equity method earnings. The second examines determinants of the adoption (or non-adoption) of the equity method, including economic and opportunistic motives (Ferris and Taylor 1983;Mazay et al 1993;Zimmer 1994;Haug and Bøhren 2006;Morris and Gordon 2006). So far, there has been little compelling evidence on the latter motive.…”