Article2003

The Value Relevance of Equity Method Fair Value Disclosures

Roger C. Graham · Craig E. Lefanowicz · Kathy Ruby Petroni

45 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Financial Reporting and Valuation Research

Abstract

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.

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References

1995Earnings, Book Values, and Dividends in Equity Valuation*1995Valuation and Clean Surplus Accounting for Operating and Financial Activities*1999Have Financial Statements Lost Their Relevance?2001The relevance of the value-relevance literature for financial accounting standard setting 1989Private benefits from control of public corporations 1961The Theory and Measurement of Business Income 1999An empirical assessment of the residual income valuation model 1994Fair Value Accounting: Evidence from Investment Securities and the Market Valuation of Banks.

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