African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4062

Full Length Research Paper

The value relevance of consolidated and separate financial statements: Are non-controlling interests relevant?

Francesco Sotti
  • Francesco Sotti
  • Department of Economics and Management, University of Pavia, Italy.
  • Google Scholar

  •  Received: 15 May 2017
  •  Accepted: 16 May 2018
  •  Published: 14 June 2018


This paper aims to analyze the value relevance of financial statements prepared according to International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS). The study focuses on two of the different sets of accounts presented by companies: the parent company financial statement and the consolidated version. We have developed a panel data from a sample of Italian listed companies by collecting accounting figures from consolidated and separate financial statements, since Italy mandates listed companies to prepare both reports according to IAS/IFRS. Using an Ohlson price model, we have tested our hypotheses, performing regressions of share price or market capitalization on book value and earning. Firstly, we compared the consolidated financial reports’ value relevance with that of the separate financial statements. The evidence suggests that, although the separate reports also have a high value relevance, this does not provide investors with additional information. Secondly, we investigated the value relevance of the consolidated financial statements alone, by focusing on the specific nature of the group’s equity book value and net income. Both are made up of two components: one referring to the parent company and the other attributable to non-controlling interests (NCI) as a consequence of the presence of minority shareholders within the group. We analyzed the value relevance of group financial statements, taking into account the presence/absence of minority shareholders and their portion of equity and net income. By dividing groups with minority shareholders from groups without these, we verified whether the presence of non-controlling interests can affect the value relevance of consolidated reports, and whether NCI equity and net income are value-relevant. In fact, all modes used to test value relevance are based only on the parent company equity and net income, leaving aside that group equity and net income are divided into two parts. The evidence suggests that NCI financial values slightly increase the fit of the model, and that NCI equity and net income are statistically significant in affecting the market capitalization of companies.

Key words: International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS), value relevance, equity, accounting.