A note on the information content of parent company versus consolidated earnings in Finland

Abstract

Little empirical research has been focused on analysing the information content of consolidated versus parent-only earnings numbers. In most European countries corporate annual reports include parent company statements, whereas in the USA only consolidated financial statements are available to shareholders. Using accounting and market data from thirty-five Finnish listed firms, we examine the information content of consolidated versus parent-only earnings, after controlling for each other. The results show that consolidated earnings are a significant incremental explanatory variable for stock returns, while parent-only earnings are not. The findings suggest that consolidation improves the information content of earnings, and the requirement to disclose parent-only earnings should be based on arguments other than their value-relevance to shareholders.