How financial information about joint ventures is being disclosed and processed by the market
DOI:
https://doi.org/10.17524/repec.v16i2.3030Keywords:
Joint Ventures, IFRS 11/12, Disclosure, Investor SophisticationAbstract
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.
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