Legislative demands and economic realities: Company and group accounts compared

Igor Goncharov, Joerg R. Werner and Jochen Zimmermann

The International Journal of Accounting, 2009, vol. 44, issue 4, 334-362

Abstract: In many countries, not only one but several sets of accounts have to be prepared and disclosed by (holding) companies. This paper investigates the possibly different economic functions of these sets of accounts by looking at the German dual financial reporting system, in which company (single) and group (consolidated) accounts have to be published. Using a large number of accounting- and market-based metrics, we test whether single and group accounts display different properties and--if so--whether this finding can be explained by different economic roles played by both sets of accounts. Indeed, properties are found to differ. However, there is no evidence for single accounts being equally or more useful than group accounts in valuation and contracting. There is also no evidence that single accounts play a superior role in determining future dividend payouts or predicting default probabilities. Moreover, single accounts do not play an incremental role in fulfilling these functions either. Our results indicate that the factual role of single accounts is to provide the basis to compute taxable income. We do not consider this an economic function in its own right but, rather, as a legal requirement that can possibly be achieved by less costly means.

Keywords: Consolidation; Earnings; quality; Harmonization; Company; law; Book-tax; conformity (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0020-7063(09)00073-9
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:44:y:2009:i:4:p:334-362

Access Statistics for this article

The International Journal of Accounting is currently edited by A. R. Abdel-Khalik

More articles in The International Journal of Accounting from Elsevier
Bibliographic data for series maintained by Catherine Liu ().