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An Evaluation of the Value Relevance of Consolidated versus Unconsolidated Accounting Information: Evidence from Quoted Spanish Firms
Author(s) -
Abad Cristina,
Laffarga Joaquina,
GarcíaBorbolla Amalia,
Larrán Manuel,
Piñero Juan Manuel,
Garrod Neil
Publication year - 2000
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/1467-646x.00060
Subject(s) - relevance (law) , value (mathematics) , accounting , accounting information system , economics , business , mathematics , political science , statistics , law
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.