Value Relevance of Change in Components of Consolidated Net Income －Focusing on Net Income Attributable to Non-Controlling Interests－
Asian Tax Journal Vol. 14 No. 6 (2013), pp. 39-65
Abstract
While Korean parent companies had reported consolidated net income under the parent entity concept until 2007, they have reported it under the entity concept since 2008. With respect to consolidated net income, the basic difference between parent entity concept and entity concept is that net income attributable to non－controlling interests(‘NCI’ hereafter) is excluded from the consolidated net income under parent entity concept, however, it is included in the consolidated net income under entity concept. This paper investigate whether there is a significant difference of value relevance of consolidated net income between two periods, PeriodⅠ(2004 through 2007) and Period Ⅱ(2008 through 2012). Regardless of the accounting standards applied, it is reasonable that there should not be a significant difference between the value relevance of consolidated net income under the two concepts. However, if the significant difference would be found it can be interpreted that market could not fully understand the meaning of consolidated net income. We found that value relevance of Period Ⅱ is significantly lower than that of PeriodⅠ. It would result from the NCI that affected negatively the stock price as a noise, and the result does not change after controlling the effect of IFRS adoption in 2011. We can conclude that the market does not fully understand the meaning of consolidated net income after adoption the entity concept, and stock prices could be affected by the form rather than the substance of accounting information.
Keywords
- consolidated net income
- parent entity concept
- entity concept
- non－controlling interests