The Effects of the Reporting of Off-Balance-Sheet Investments on EPS Uncertainty, Leverage and Shareholders’ Wealth

Financial Management Winter 2012 • pages 1009 - 1042

Posted: 9 Aug 2013 Last revised: 19 Sep 2015

See all articles by Tomas Mantecon

Tomas Mantecon

University of North Texas

James A. Conover

University of North Texas - Department of Finance (FIREL)

Ayca Altintig

Claremont Colleges - Peter F. Drucker Graduate School of Management

Kyojik Song

Sungkyunkwan University

Date Written: December 30, 2011

Abstract

The degree of control over operations affects the quality of information provided to investors. Uncertainty about operating performance increases following the first equity method (EM) reporting of off-balance-sheet investments, but only when the investments are joint ventures (JVs). Partners in JVs report lower levels of debt. These results are not due to informational deficiencies of the EM, but to the riskier nature of JVs. Long-run stock performance analysis indicates that investors experience normal risk-adjusted returns when investing in firms with economically significant off-balance sheet investments.

Suggested Citation

Mantecon, Tomas and Conover, James A. and Altintig, Z. Ayca and Song, Kyojik, The Effects of the Reporting of Off-Balance-Sheet Investments on EPS Uncertainty, Leverage and Shareholders’ Wealth (December 30, 2011). Financial Management Winter 2012 • pages 1009 - 1042, Available at SSRN: https://ssrn.com/abstract=2307776

Tomas Mantecon (Contact Author)

University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

James A. Conover

University of North Texas - Department of Finance (FIREL) ( email )

FIREL Department
Denton, TX 76203-5339
United States
940-565-3061 (Phone)

Z. Ayca Altintig

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States

Kyojik Song

Sungkyunkwan University ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)
82-2-760-0497 (Phone)

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