Do Alternative Methods of Reporting Non-Controlling Interests Really Matter?

Posted: 19 Apr 2013 Last revised: 15 May 2014

See all articles by Ana Isabel Lopes

Ana Isabel Lopes

ISCTE-IUL Instituto Universitário de Lisboa

Isabel Lourenço

Lisbon University Institute (ISCTE-IUL); University of São Paulo (USP)

Mark T. Soliman

University of Southern California - Marshall School of Business

Date Written: October 12, 2012

Abstract

Researchers have long been interested in whether the classification of various items on the balance sheet matters to investors. This paper provides evidence on whether reporting non-controlling interests (NCI) as equity or as non-equity matters in terms of value relevance. We use a sample of German firms that voluntary adopted International Financial Reporting Standards early. This adoption required them to change their reporting of NCI from the non-equity to the equity portion of the balance sheet. After conducting sensitivity tests for self-selection bias and controlling for weight of NCI, firm size and leverage, our results suggest that NCI are priced by the market in the same manner irrespectively of being reported as equity or non-equity. This finding reinforces the notion that equity markets are efficient in their processing of information, regardless of the classification by standard setters.

Keywords: Changes to standards, consolidated statement of financial position, non-controlling interests, recognition versus disclosure

JEL Classification: M41

Suggested Citation

Lopes, Ana Isabel and Lourenço, Isabel and Soliman, Mark T., Do Alternative Methods of Reporting Non-Controlling Interests Really Matter? (October 12, 2012). Australian Journal of Management, Vol. 38, No. 1, 2013, Available at SSRN: https://ssrn.com/abstract=2253333

Ana Isabel Lopes

ISCTE-IUL Instituto Universitário de Lisboa ( email )

Av. das Forças Armadas
Building II
Lisboa, 1649-026
Portugal

Isabel Lourenço

Lisbon University Institute (ISCTE-IUL) ( email )

Complexo Indeg/Iscte
Av. Professor Anibal Bettencourt
Lisbon, 1600-189
Portugal

University of São Paulo (USP) ( email )

Brazil

Mark T. Soliman (Contact Author)

University of Southern California - Marshall School of Business ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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