Global Definitions Database

A type of accounting used for intercorporate investments; used when an investor holds significant influence over a investee but does not exercise full control over it, as in the relationship between a parent company and its subsidiary; generally, an investor is deemed to have significant influence over an investee if it owns between 20% to 50% of the investee’s shares or voting rights; if, however, the investor has less than 20% of the investee’s shares but still has a significant influence in its operations, then the investor must still use the equity method.