The value relevance of disclosures of liabilities of equity-accounted investees: UK evidence

This study examines the valiie relevance of miindated disclosures by UK firms of the investor-finn share o{ liabilities of equily-aecounled ass(x:iaie and joint venture inveslecs. It does so for the six years following the intrtxluction of FRS 9: AssovUiWs ami Join! Ventures, which forced a substantial increase in such disclosures by UK firms. Since ihe increased disclosure requirements were partly niolivated by concern thai single-line equity accounting concealed the level of group gearing, and in lighl of previous US results, it is predicted thai ihe mandated investee-liability disclosures have a negative coefficient in a vaiue-relevance regression. The study also examines wheiher value-relevance regression coefficients on inveslee-liability disclosures are more negative for joint ventures than for associates and whether they are more negative in Ihe presence of investor-firm guarantees of inveslee-firm obligations than in the ahsence of such guarantees. The study reports ihal Ihc coefficient on all investeeliability disclosures taken together has the predicled negative sign, and is significantly different Trom icto. It finds little evidence that ihe negative valuation impact of liability disclosures is stronger for joint venture investees overall Ihan for associate investees overall, or stronger for guarantee cases overall than lor non-guarantee cases overall. There is. however, some evidence thai the impact for joint venture guarantee cases is stronger than thai for joint venture non-guaraniee cases and stronger than [hat for associate guarantee cases.