Abstract

Starting in 2011, Korean companies should present IFRS－compliant financial statements. As one of the requirements, a parent company needs to issue consolidated financial statements as the primary financial statements. Since current Korean GAAP requires non－consolidated financial statements as the primary financial statements, various stakeholders in Korea are not accustomed to consolidated financial statements. The purpose of this paper is to identify differences in the economic meaning and the informativeness between these two types of financial statements. We use financial data from 2004 to 2008 with more reliability after the post－audit review process of FSS. We find that there exist differences in key financial information between consolidated financial statements and nonconsolidated financial statements. In addition, the value－relevance of both book value and earnings are not significantly different between them. Finally, we find that market additionally responds to the announcement of consolidated financial statements. Specifically, there is significant return－earnings relation for consolidated earnings even after controlling the impact of non－consolidated earnings, and the average trade volume around the announcement of consolidated earnings date is greater than that in the non－report period. This paper may provide guidelines for disentangling differences in financial information between non－consolidated and consolidated financial statements and evaluating the economic substance of a firm on the basis of consolidated financial statements. In addition, this paper may empirically support the adoption of K－IFRS by showing that consolidated financial statements are significantly utilized for investor’s decision－making of short－term as well as of long－term.

Keywords

• K－IFRS
• Consolidated Financial Statements
• Value－Relevance
• ERC
• Trade Volume

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