| This thesis develops an approach to investigate accounting for investments in joint ventures. The Consolidations Project of the Financial Accounting Standards Board (FASB) is concerned with the reporting of joint venture interests. Under current United States Generally Accepted Accounting Principles (GAAP), joint venture revenues are neither consolidated with investor revenues, nor are they disclosed separately. Joint venture earnings are aggregated with associate earnings and the sum is reported as a single line item. In the balance sheet, the investor's net investment in joint ventures and associates is reported in aggregate as a single line item. However, Canadian and United Kingdom GAAP require that firms disclose their share of joint venture revenues, operating earnings, assets, and liabilities. Using samples of Canadian and UK firms that have investments in joint ventures, this thesis investigates various financial statement implications of joint venture reporting requirements.; The principal part of the thesis investigates whether joint venture revenues and operating income are relevant for forecasting future earnings of the investor and explaining equity value. This thesis modifies the Ohlson valuation model, by disaggregating joint venture revenues from investor revenues and net abnormal earnings. It also disaggregates joint venture operating earnings from investor operating earnings and net abnormal earnings. According to Ohlson [1999], the disaggregated earnings component is forecasting and valuation relevant if it persists. The results indicate that joint venture revenues are forecasting and valuation relevant, and as persistent as investor revenues and operating earnings, respectively. Therefore, not disclosing them, given that they are not already included in investor revenues and earnings, masks information that is potentially relevant to shareholders.; Findings for the Canadian sample show that joint venture cash flows are forecasting and valuation irrelevant. Findings from a separate analysis on a sample of UK firms show that associate income is less persistent than investor income, and is overall forecasting and valuation irrelevant.; This thesis also investigates the risk measurement implications of reporting for joint ventures. It finds that joint venture accounting ratios, such as financial leverage and variability of return on assets, are informative in explaining market risk, incremental to investor accounting risk ratios. |
