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

Authors

  • Tomas Mantecon,

  • James Conover,

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    • James Conover is a Professor in the Finance, Insurance, Real Estate, and Law Department of the University of North Texas in Denton, TX. Ayca Altintig is an Assistant Professor in the George L. Argyros School of Business and Economics at Chapman University in Orange, CA. Tomas Mantecon is an Assistant Professor in the Finance, Insurance, Real Estate, and Law Department of the University of North Texas in Denton, TX. Kyojik Song is an Associate Professor at Sungkyunkwan University in Seoul, Korea.

  • Acya Altintig,

  • Kyojik Song


  • We would like to acknowledge the comments of an anonymous referee, Bill Christie (Editor), and Susan Hamlen for valuable feedback and the contribution of Wendy Jennings in providing editorial assistance.

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.

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