Corporate responses to the introduction of the Australian consolidation standard: a test of disclosure cost explanations

Journal of the Academy of Business and Economics, Feb, 2003 by Jean M. Canil, Bruce A. Rosser

Joint ventures are identified with reference to several sources of information. In about three-quarters of all cases the corporate status is disclosed either in the Associate Investments' note or in the Directors' Report. For the remainder, the status was inferred from surrounding disclosures, and where necessary was confirmed by telephoning the company secretary of the firm. For instance, firms in the natural resources and high technology industries and located overseas turned out nearly always to be joint ventures. A lower bound is set at the same percentage adopted by the Corporations Law for determining when an offeror already has effective control of an offeree, namely 30% (See Corporations Law, chapter 6, s. 648 1a). In the absence of disclosures, exactly 50.0%, 33.3% and 25% shareholdings are interpreted as being joint venture arrangements, where the firm shares control and therefore avoids inference of control from the perspective of AASB 1024.

The pre-adoption disposal rate is measured as the mean number of controlled associates sold- off, sold-down or converted to an IJV in 1991 and 1992, divided by the number of controlled associates at the end of 1990. The post-adoption disposal rate is the number of controlled associates disposed of in 1993, divided by the number of controlled associates at the end of 1992. This ratio is in turn divided by the corresponding disposal rate for subsidiaries to produce a relative disposal rate. Otherwise, for post-adoption purposes and descriptive statistics, the disposal rate is measured by the number of controlled associates disposed of in a given year, divided by the number of controlled associates at the start of the year. This rate is converted into relative terms by dividing by the corresponding disposals rate for subsidiaries.

The non-disclosure rate of a firm is the ratio of the number of non-disclosures of controlled associates to the number of controlled associates at the beginning of the same year. Non-disclosures are implied when a controlled associate is reported pre-adoption but does not appear post-adoption, and is not otherwise disposed of. Pre-adoption, the non-disclosure rate is the Mean of 1991 and 1992 disposals divided by the number of controlled associates at the end of 1990. Post-adoption, the non-disclosure rate is the ratio of 1993 disposals to the number of controlled associates at the end of 1992.

5. DESCRIPTIVE STATISTICS

For disclosure purposes, IJVs are close substitutes for controlled associates. The frequencies of all classes of sub-entities are reported in Table I. Associate entities include any joint ventures and partnerships reported as such. The steady decline in the numbers of all sub-entities apart from subsidiaries during the sample period reflects ongoing improvements to the design of corporate structures. The least decline is indicated for IJVs. This result is not unexpected because AASB 1024 did not impact on IJVs. The small decline in IJVs from 1990 to 1992 suggests that relatively few controlled associates were converted into joint ventures.