EVIDENCE FROM THE GERMAN CAPITAL MARKET REGARDING THE VALUE RELEVANCE OF CONSOLIDATED VERSUS PARENT COMPANY FINANCIAL STATEMENTS

Financial statements main objective is to give information on the financial position, performance and changes in financial position of the reporting entity, which is useful to investors and other users in making economic decisions. In order to be useful, financial information needs to be relevant to the decision-making process of users in general, and investors in particular. Hence, the following question arises logically which of the two sets best serves the information needs of investors (and other categories of users), respectively which of the two sets is more relevant for investors? Of course, the possibility of both sets at the same time best serving the information needs should not be ruled out. In our scientific endeavor we conducted an empirical association study on the problem of market value relevance of consolidated financial statements and of individual financial statements of the parent company, searching for an answer to the above question. In this sense, we analyze the absolute and relative market value relevance of consolidated accounting information of listed companies on the Frankfurt Stock Exchange (one of the largest three stock markets in the European Union) between 2003 and 2008. Through this empirical study we intend to contribute to the relatively limited literature on this topic with a comparative time analysis of the absolute and incremental relevance of financial information supplied by the two categories of financial statements (group and individual). The results obtained indicate a statistically significant superiority of the relevance of consolidated statements (in detriment of individual ones). However, we could not statistically prove a superior value relevance of information provided together by consolidated and parent company financial statements as opposed to consolidated information. On the one hand, these results prove the importance (usefulness) of consolidated financial statements especially for investors on the capital market, and on the other hand, they question the necessity of publishing parent company financial statements