Does the interaction between the accounting method choice and disclosure affect financial analysts’ information environment?The case of joint ventures under IAS 31

  1. Begoña Giner Inchausti 1
  2. Raul Iñiguez Sanchez 2
  3. Francisco Poveda Fuentes 2
  1. 1 Department of Accounting, University of Valencia
  2. 2 Department of Financial Economics and Accounting, University of Alicante
Journal:
Revista española de financiación y contabilidad

ISSN: 0210-2412

Year of publication: 2017

Volume: 46

Issue: 3

Pages: 298-326

Type: Article

DOI: 10.1080/02102412.2017.1325598 DIALNET GOOGLE SCHOLAR

More publications in: Revista española de financiación y contabilidad

Abstract

La NIC 31 permitía elegir entre integración proporcional y el método de la participación para la inclusión de los negocios conjuntos en las cuentas consolidadas de los partícipes. Además, esta elección conllevaba la inclusión de cierta información sobre los negocios conjuntos en los estados financieros primarios o en la memoria. Este trabajo investiga si los analistas financieros perciben la información contable de forma distinta dependiendo del método elegido, condicionado a que se divulgue la información requerida en la memoria. Se analiza una muestra de empresas españolas en el periodo 2005-2010, y se considera la influencia de la decisión contable sobre las predicciones de beneficios, precios objetivo y recomendaciones sobre acciones. Adicionalmente, se estudia si esta opción contable afecta al entorno informativo de los analistas. Nuestros resultados sugieren que la elección no afecta al sesgo ni a la precisión de las predicciones de beneficios, ni tampoco a precios objetivo ni a recomendaciones, al margen de que las empresas proporcionen o no información en la memoria. Pese a que la integración proporcional implica menor dispersión en las predicciones, los contrastes realizados no permiten confirmar que el entorno informativo se vea afectado por el uso de un método contable u otro. Estos resultados apoyan la decisión tomada en la NIIF 11 de imponer un único método para la contabilización de los negocios conjuntos.

€ View funding

Funding information

Funders

Bibliographic References

  • Acker, D., Horton, J., & Tonks, I., (2002). Accounting standards and analysts’ forecasts:The impact of FRS3 on analysts’ ability to forecast EPS. Journal of Accounting and Public Policy, 21(3), 193–217.
  • Barron, O. E., Byard, D., Kile, C., & Riedl, E., (2002a). High-technology intangibles and analysts’ forecasts. Journal of Accounting Research, 40(2), 289–312.
  • Barron, O. E., Byard, D., & Kim, O., (2002b). Changes in analysts’ information around earnings announcements. Accounting Review, 77(4), 821–846.
  • Barron, O. E., Kim, O., Lim, S. C., & Stevens, D. E., (1998). Using analysts’ forecasts to measure properties of analysts’ information environment. Accounting Review, 73(4), 421–433.
  • Bauman, M., (2007). Proportional consolidation versus equity method:Additional evidence on the association with bond ratings. International Review of Financial Analysis, 16(5), 496–507.
  • Begley, J., Cheng, Q., & Gao, Y., 2009. Changes in analysts’ information environment following the sarbanes- oxley act and the global settlement, Working Paper, University of British Columbia and University of Alberta.
  • Beuselinck, C., Joos, P., Khurana, I. K., & Van Der Meulen, S., 2010. Mandatory adoption of IFRS and analysts’ forecasts information properties. Discussion Paper, Tilburg University, No.2010–2112.
  • Bhushan, R., (1989). Firm characteristics and analyst following. Journal of Accounting and Economics, 11, 255–274.
  • Bierman, H., Jr. (1992). Proportionate consolidation and financial analysis. Accounting Horizons, 6(4), 5–17.
  • Bilinski, P., Lyssimachou, D., & Walker, M., (2013). Target price accuracy:International evidence. Accounting Review, 88(3), 825–851.
  • Bloomfield, R. J., (2002). The “incomplete revelation hypothesis” and financial reporting. Accounting Horizons, 16(Issue), 2, p233.
  • Bonini, S., Zanetti, L., Bianchini, R., & Salvi, S., (2010). Target price accuracy in equity research. Journal of Business Finance and Accounting, 37, 1177–1217.
  • Botosan, C., Plumlee, M., & Xie, Y., (2004). The role of information precision in determining the cost of equity capital. Review of Accounting Studies, 9, 23–259.
  • Bradshaw, M., Brown, L., & Huang, K., (2013). Do sell-side analysts exhibit differential target price forecasting ability? Review of Accounting Studies, 18, 930–955.
  • Brown, L. D., Richardson, G. D., & Schwager, S. J., (1987). An information interpretation of financial analyst superiority in forecasting earnings. Journal of Accounting Research, 25(1), 49–67.
  • Byard, D., Li, Y., & Yu, Y., (2011). The effect of mandated IFRS adoption on analysts’ forecast errors. Journal of Accounting Research, 49(1), 69–96.
  • Capstaff, J., Paudyal, K., & Rees, W., (1999). The relative forecast accuracy of UK brokers. Accounting and Business Research, 30(1), 3–16.
  • Cascino, S., Clatworthy, M., García Osma, B., Gassen, J., Imam, S., & Jeanjean, T., (2013). The use of information by capital providers. ICAS and EFRAG Academic literature reviewEdinburgh:ICAS-EFRAG.
  • Collins, D. W., Pincus, M., & Xie, H., (1999). Equity valuation and negative earnings:The role of book value of equity. The Accounting Review, 74(1), 24–61.
  • Demirakos, E. G., Strong, N., & Walker, M., (2010). Does valuation model choice affect target price accuracy? European Accounting Review, 19, 35–72.
  • Diamond, D., & Verrechia, R., (1991). Disclosure, liquidity, and the cost of capital. Journal of Finance, 46, 1325–1359.
  • Ding, Y., Hope, O., Jeanjean, T., & Stolowy, H., (2007). Differences between domestic accounting standards and IAS:measurement, determinants and implications. Journal of Accounting and Public Policy, 26, 1–38.
  • Espinosa, M., Iñiguez, R., & Poveda, F., (2015). Integración proporcional vs método de la participación:Análisis de valoración y capacidad predictiva. Spanish Journal of Finance and Accounting /Revista Española De Financiación Y Contabilidad, 44(3), 352–385.
  • Francis, F., Dhanamjay, N., & Olsson, P., (2008). Voluntary Disclosure. Earnings Quality, and Cost of Capital, Journal of Accounting Research, 46(1), 53–99.
  • Giner, B., & Verón, C., (2012). Determinantes de la discrecionalidad directiva en la elección del método contable de las participaciones en negocios conjuntos. Spanish Journal of Finance and Accounting /Revista Española De Financiación Y Contabilidad, 156, 589–613.
  • Gleason, C. A., Johnson, W. B., & Li, H., (2013). Valuation model use and the price target performance of sell-side equity analysts. Contemporary Accounting Research, 30(1), 80–115.
  • Glosten, L., & Milgrom, P., (1985). Bid, ask, and transaction prices in a specialist market with heterogeneously informed traders. Journal of Financial Economics, 14, 71–100.
  • Graham, R. C., King, R. D., & Morrill, C. K. J., (2003). Decision usefulness of alternative joint venture reporting methods. Accounting Horizons, 17(3), 123–137.
  • Hayn, C., (1995). The information content of losses. Journal of Accounting and Economics, Vol.20(2), 125–153.
  • Higgins, H. N., (1998). Analyst forecasting performance in seven countries. Financial Analysts Journal, 54(3), 58–62.
  • Hirshleifer, D., & Teoh, S. H., (2003). Limited attention. Information Disclosure, and Financial Reporting. Journal of Accounting and Economics, 36(1), 337–386.
  • Hirst, D. E., Hopkins, P. E., & Wahlen, J. M., (2004). Fair values, comprehensive income reporting, and bank analysts’ risk and valuation judgments. Accounting Review, 79 (2), 453-472.
  • Hodder, L., Hopkins, P. E., & Wood, D. A., (2008). The effects of financial statement and informational complexity on analysts’ cash flow forecasts. Accounting Review, 83(4), 915–956.
  • Hodgdon, C., Tondkar, R. H., Harless, D. W., & Adhikari, A., (2008). Compliance with IFRS disclosure requirements and individual analysts’ forecast errors. Journal of International Accounting, Auditing and Taxation, 17(1), 1–13.
  • Hope, O.-K., (2003a). Accounting policy disclosures and analysts’ forecasts. Contemporary Accounting Research, 20(2), 295–321.
  • Hope, O.-K., (2003b). Disclosure practices, enforcement of accounting standards, and analysts’ forecasts accuracy:An international study. Journal of Accounting Research, 41(2), 235–272.
  • Horton, J., Serafeim, G., & Serafeim, I., (2013). Does mandatory IFRS adoption improve the information environment? Contemporary Accounting Research, 30(1), 388–423.
  • IASB (International Accounting Standards Board). (2003a). IAS 28 investment in associates. London:International Accounting Standards Board.
  • IASB (International Accounting Standards Board). (2003b). IAS 31 Interests in Joint Ventures. London:International Accounting Standards Board.
  • IASB (International Accounting Standards Board). (2010). The conceptual framework for financial reporting. London:International Accounting Standards Board.
  • IASB (International Accounting Standards Board). (2011a). IFRS 11 Joint Arrangements. London:International Accounting Standards Board.
  • IASB (International Accounting Standards Board). (2011b). Effects analysis-IFRS 11 joint arrangements and disclosures for joint arrangements included in IFRS 12 disclosure of interest in other entities. London:International Accounting Standards Board.
  • Johansen, T. R., & Plenborg, T., (2013). Prioritising disclosures in the annual report. Accounting and Business Research, 43(6), 605–635.
  • Joos, P., & Plesko, G. A., (2005). Valuing loss firms. Accounting Review, 80(3), 847–870.
  • Kothavala, K., (2003). Proportional consolidation versus equity method:A risk measurement perspective on reporting interests on joint venture. Journal of Accounting and Public Policy, 22(6), 517–538.
  • Lang, M. H. A., & Lundholm, R. J., (1996). Corporate disclosure and analysts behavior. Accounting Review, 71(4), 467–492.
  • Lee, S., Pandit, S., & Willis, R. H., (2013). Equity method investments and sell-side analysts’ information environment. Accounting Review, 88(6), 2089–2115.
  • Leung, H., (2011). Analysts earnings forecast distribution. International Journal of Banking and Finance, 8(3), 37–53.
  • Lourenço, I., Fernandes, S., & Curto, J., (2012). How does the market view interest in jointly controlled entities? Spanish Journal of Finance and Accounting /Revista Española De Financiación Y Contabilidad, 153, 119–142.
  • Makridakis, S., (1993). Accuracy measures:Theoretical and practical concerns. International Journal of Forecasting, 9(4), 527–529.
  • Mısırlıoğlu, I. U., Tucker, J., & YüKseltüRk, O., (2013). Does mandatory adoption of IFRS guarantee compliance? The International Journal of Accounting, 48, 327–363.
  • Mohanram, P. S., & Sunder, S. V., (2006). How has regulation FD affected the operations of financial analysts. Contemporary Accounting Research, 23(2), 491–525.
  • Ohlson, J. A., (2001). Earnings, book values, and dividends in equity valuation:An empirical perspective. Contemporary Accounting Research, 18(1), 107–120.
  • Petersen, M., (2009). Estimating standard errors in finance panel data sets:Comparing approaches. Review of Financial Studies, 22, 435–480.
  • Preiato, J. P., Brown, P. R., & Tarca, A., 2013. Mandatory adoption of IFRS and analysts’ forecasts:How much does enforcement matter? UNSW Australian School of Business Research Paper. Available from:http://ssrn.com/abstract=1499625 [Accessed 17October 2014].
  • Ramnath, S., Rock, S., & Shane, P., (2008). The financial analyst forecasting literature:A taxonomy with suggestions for further research. International Journal of Forecasting, 24, 34–75.
  • Schaberl, P. D., (2014). The influence of disclosure policy on analyst behavior:The case of segment data. Advances in Accounting, Incorporating Advances in International Accounting, 30, 440–451.
  • Schipper, K., (1991). Analysts’ forecasts. Accounting Horizons, 5(4), 105–121.
  • Stoltzfus, R. L., & Epps, P. R., (2005). An empirical study of the value-relevance of using proportionate consolidation accounting for investments in joint ventures. Accounting Forum, 29, 169−190.
  • Tsalavoutas, I., (2011). Transition to IFRS and compliance with mandatory disclosure requirements:What is the signal? Advances in Accounting, Incorporating Advances in International Accounting, 27, 390–405.
  • Vanstraelen, A, Zarzeski, M, & Robb, S., (2003). Corporate nonfinancial disclosure practices and financial analyst forecast ability across 3 european countries. Journal Of International Financial Management And Accounting, 14(3), 249-278.
Data source: Dialnet