Events

Prof. Wei Luo
Associate Professor of Accounting
Guanghua School of Management
Peking University

This paper examines whether parent-only financial statements are informative to assess credit risks in addition to consolidated financial statements. Utilizing the dual reporting system in China, we find that parent-consolidated discrepancy (PCD) of leverage positively relates to bond default, and the discrepancies of ROA and Z score negatively relate to bond default. The effects of these PCD ratios on default prediction are more pronounced when the subsidiaries are more important in the group, when the downside risk of the parent firm is high, and when the intra-group transactions are less active. Further analysis indicates that the bond market partially prices the information of PCD ratios at bond issuance and gradually reflects it in the secondary market.