This paper contributes to the recent literature on the information transparency and its impact on stock price\nvolatility. Some authors claim that more disclosure might reduce volatility of the stock price. Since 2005 the use of\nIFRS is mandatory for listed companies in the EU. In some countries, like Demark, corporate law allows the use\nof the Equity Method in separate financial statements to measure investments in subsidiaries, which is contrary to\nIFRS. Lately, IFRS has re-allowed the use of the Equity Method (probably to be approved by the EU soon). This study\ninvestigates the stock volatility consequences of using the Equity Method so far in Denmark. We had collected all\nDanish non-financial and non-insurance companies disclosing consolidated Group and Parent company financial\nstatements. Also, we selected volatility measures by use of the ORBIS-database, and analyses it all together. Our\ntests showed lower level of volatility for the Equity Method using group of companies compared to the non-Equity\nmethod using group of companies, also after controlling for differences in industries and transparency levels in\nthe two groupsââ?¬â?¢ companies. Regression analyses confirmed the tendency that Equity Method and lower volatility\nfollows each other. However, we did not find evidence that the specific account ââ?¬Å?Reserve for net Revaluations\nunder the Equity Methodââ?¬Â should be a significant part of the relation. It seems that most important for the size of\nthe volatility is the difference between consolidated Group Equity and Parent Equity. However, whether a smaller\ndifference stems from a relatively high part of group income being realized in parentââ?¬â?¢s financial statements, or\nwhether it stems from relatively high part of group income being recognized in subsidiaries by use of the Equity\nMethod seems not to be important.
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