An Evaluation of the Value Relevance of Consolidated versus Unconsolidated Accounting Information: Evidence from Quoted Spanish Firms

Abstract

In this paper we investigate the value-relevance of consolidated versus parent company accounting information. In particular we investigate the value relevance of the minority interest components of net total assets and earnings as currently reported and under the full entity approach to consolidated reporting. An Edwards-Bell-Ohlson valuation framework is used to generate results. By this means we cast light on the suitability of accounting regulation being developed based upon the entity or parent company theories of consolidation. We carry out the analysis in the Spanish context and the sample contains 474 observations of non-financial firms quoted in the Madrid Stock Exchange for the period 1991-97. The results from this analysis not only have domestic relevance but provide guidance of a more international nature relating to the impact of group definition, concepts of control and the most value relevant method of consolidated disclosure. The results show that, from a valuation perspective, consolidated information dominates non-consolidated, or parent company, information. However, neither the currently reported minority interest components of net total assets and earnings, nor their values under the full equity method of consolidation, are found to be value relevant. These results raise the question of whether group definitions based on the equity theory of consolidation are the most useful to investors.

Does Board Gender Diversity Influence Financial Performance? Evidence from Spain

“…We consolidate the economic and financial information, in line with Abad et al (2000), who highlight the potential limitations of accounting information at the individual level. Individual financial statements have been used in the case of non-consolidated financial statements.…”

Fundamental analysis of stocks by two‐stage DEA

“…We decided to focus on the consolidated accounting information, given the existing evidence that it is the consolidated information that is being taken into account when valuing the stocks of parent companies. (Abad et al, 2000 finds evidence that for Spanish firms the consolidated information is more value-relevant than the parent company disclosure alone. Moreover, interviews with Spanish financial analysts reveal that valuations of the parent company are based on group rather than individual accounts, unless the parent company's activities are highly differentiated from the rest of the group's.…”

Value Relevance of Accounting Data in an Emerging Market: Did Accounting Reforms Make a Difference?

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