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The Value Relevance of Equity Method Fair Value Disclosures
Author(s) -
Graham Roger C.,
Lefanowicz Craig E.,
Petroni Kathy R.
Publication year - 2003
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.05426
Subject(s) - fair value , valuation (finance) , equity (law) , equity value , economics , book value , business , accounting , financial economics , stock (firearms) , actuarial science , finance , earnings , debt levels and flows , external debt , political science , law , debt , mechanical engineering , engineering
We assess the valuation implications of the fair value disclosures made for publicly traded securities accounted for under the equity method. We test the association between investors' stock price metrics and fair value disclosures while controlling for book values on a sample of 172 investor firm‐years during 1993–1997. Our results indicate that the information in the fair value disclosures is incremental to the information provided by both an investment's equity method book value and equity method reported income. This suggests that there is nothing unique about investments in publicly traded common stock that involve significant influence that makes the fair value disclosures irrelevant for firm valuation.