Value Relevance of Proportionate Consolidation Versus the Equity Method : Evidence from Hong Kong

Whether proportionate consolidation (PC) or the equity method (EM) provides more informative financial statements has been controversial. This study uses data from listed companies in Hong Kong to investigate the value relevance of EM compared to PC during 2005-2008 when the local word-for-word equivalent HKAS 31 offered the same options. The results of this study provide evidence that PC does not offer higher value relevance than EM. PC’s horizontal aggregation of a portion of the operations, assets and liabilities of the jointly controlled entities (JCEs) with those of the venturer is less informative to investors than EM’s vertical aggregation