Risk differences and financial reporting

Risk differences and financial reporting

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Article ID: iaor201522833
Volume: 8
Issue: 4
Start Page Number: 327
End Page Number: 334
Publication Date: Dec 1985
Journal: Journal of Financial Research
Authors: ,
Keywords: risk, management, investment
Abstract:

Financial leverage as reported by a consolidated financial statement may differ substantially from leverage for the parent company. To assess the financial risk for the parent (not the consolidated entity), employing consolidated data is hazardous; the problem is magnified by the fact that virtually all firms report only consolidated data. Consolidated leverage almost always equals or exceeds parent leverage for a wholly owned subsidiary, and many firms reporting only consolidated data have betas significantly greater than otherwise comparable firms that report both consolidated and parent company information.

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