An Evaluation of Value Relevance of Consolidated Earnings and Cash Flow Reporting in India

29 Pages Posted: 10 Aug 2012

See all articles by Padmini Srinivasan

Padmini Srinivasan

Indian Institute of Management Bangalore

M. S. Narasimhan

Indian Institute of Management, Bangalore

Date Written: March 25, 2010

Abstract

This study examines the value relevance of consolidated financial statements and cash flow statements in the Indian Stock market. In the recent years several new disclosures have been mandated in India including the cash flow statement and the preparation of consolidated financial statements. The motivation for the additional disclosures has been internationalization of accounting standards as well as better transparency. Very few countries provide information on both stand alone as well as consolidated financial statements, which makes it unique in the Indian context to study the relative importance of these statements. This study provides evidence on consolidated financial statements and the preparation of cash flow statement.

Our findings are that consolidated accrual earnings and cash flows statements have no significant association with market adjusted stock return. On the contrary, the parent only earnings show significant positive relationship with the stock returns. Our results are quite contrary to the existing literature on value relevance from other counties and throws light on the way markets react to the information in an emerging market like India. These results have a policy implication for the regulators especially as we are moving towards adopting the International Financial reporting standards.

Keywords: Consolidated earnings, Parent only earnings, Cash flows, Stock returns, Value relevance, Accounting information, Indian Stock Market

JEL Classification: G10, G14, M41

Suggested Citation

Srinivasan, Padmini and Narasimhan, M. S., An Evaluation of Value Relevance of Consolidated Earnings and Cash Flow Reporting in India (March 25, 2010). IIM Bangalore Research Paper No. 306, Available at SSRN: https://ssrn.com/abstract=2125749 or http://dx.doi.org/10.2139/ssrn.2125749

Padmini Srinivasan (Contact Author)

Indian Institute of Management Bangalore ( email )

Bannerghatta Road
Bangalore, 560 076
India

M. S. Narasimhan

Indian Institute of Management, Bangalore ( email )

Bangalore, Karnataka, 560076
91-80-26993026 (Phone)

HOME PAGE: http://www.iimb.ernet.in

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
288
Abstract Views
1,725
rank
136,002
PlumX Metrics