Value-Relevance of Fair Value Disclosures for Investments in Securities Accounted for Under the Equity Method

The objective of this study is to test the value-relevance of disclosed fair values of investments in publicly-traded equity securities accounted for under the equity method. We test for an association between alternative stock price metrics and fair value disclosures after controlling for recognized book values for a sample of non-financial firms during 1993-1997. The results indicate that stock prices are consistently positively associated with the difference between disclosed fair values and recognized book values. The results suggest that standard setters' concerns that there are unique valuation implications for investments in common stock that involve significant influence may not be warranted