Equity accounting : introducing an ex ante contracting analysis

Jackson, Robert L. (1987). Equity accounting : introducing an ex ante contracting analysis Honours Thesis, School of Business, The University of Queensland.

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Author Jackson, Robert L.
Thesis Title Equity accounting : introducing an ex ante contracting analysis
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1987
Thesis type Honours Thesis
Total pages 81
Language eng
Subjects 1501 Accounting, Auditing and Accountability
Formatted abstract
During the 1970’s there was a substantial growth in the number of investor companies employing the equity method of accounting for investments in associated companies. This thesis offers an ex ante contractual examination of the incentives of investor corporations to adopt equity accounting, whilst also considering the typical ex post opportunism hypothesis.

Utilizing a “restricted time-series design", strong empirical support exists for the expected increase in the number of associates in the year an investor first employs equity accounting, and for the hypothesis that investor firms are more likely to equity account than cost account investments in unlisted companies. Support (albeit weak) was found for the hypothesis that investment companies were more likely to equity account investments in associates. Remembering that the effects of cost and equity accounting on income are problematic, the evidence did not support the hypothesis that investor firms using the income increasing alternative were significantly closer to debt covenant restrictions than companies adopting the income decreasing technique. The collaterization hypothesis was not directly testable. The number of associated companies, the likely presence of cross-guarantees and management’s share of investor equity were not discovered to be explainers of accounting policy choice.

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Created: Wed, 03 Nov 2010, 11:31:01 EST by Muhammad Noman Ali on behalf of The University of Queensland Library