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The incremental informativeness of public subsidiary earnings

Abbie Daly (Accounting Department, University of Wisconsin-Whitewater, Whitewater, Wisconsin, USA)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 8 May 2018

316

Abstract

Purpose

This study aims to investigate how holding public subsidiaries affects the information environment of consolidated entities in Germany.

Design/methodology/approach

The sample consists of German consolidated entities that are traded on major German stock exchanges over the fiscal years 2005-2012 and hold subsidiaries with public common equity. The informativeness of earnings, defined as the association between earnings and returns, is used to investigate how holding public subsidiaries affects the information environment of consolidated entities.

Findings

Findings suggest that public subsidiary earnings are incrementally informative about consolidated entity returns beyond both consolidated and segment earnings reported by consolidated entities in Germany. An investigation into the factors that affect the incremental informativeness of public subsidiary earnings reveals that public subsidiary earnings are more incrementally informative when, compared to the consolidated entity, they are relatively large, have dissimilar growth prospects and are from the same country (i.e. Germany).

Practical implications

These findings suggest that this disclosure is useful to investors and that this type of disclosure could be valuable to adopt in other countries that do not have this disclosure requirement.

Originality/value

These findings contribute to the streams of literature that: investigate ways that regulators can improve the information environment of corporations, compare the informativeness of accounting measures and investigate the informativeness of subsidiary information.

Keywords

Acknowledgements

The author gratefully acknowledges the support and guidance of the dissertation committee at the University of Wisconsin-Madison: Terry Warfield (chair), Mark Fedenia, Brian Gould, R.D. Nair and Holly Skaife. The author also acknowledges the helpful comments and suggestions from Amanda Convery and workshop participants at the University of Wisconsin-Madison, Han Wu and participants at the 2015 AAA IAS Midyear Meeting, participants at the Fifth International Conference of The Journal of International Accounting Research and from three anonymous reviewers. The author also appreciates the excellent editorial support provided by Editor Maggie Liu.

Citation

Daly, A. (2018), "The incremental informativeness of public subsidiary earnings", International Journal of Accounting & Information Management, Vol. 26 No. 2, pp. 272-290. https://doi.org/10.1108/IJAIM-01-2017-0007

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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