The direct cost of mandatory subsidiary disclosure

Abstract

This thesis gives insights into the disclosure behaviour of corporate groups and the use of financial reporting, auditing and filing relief for subsidiary companies as the regulatory framework shifts from a mandatory requirement to de facto voluntary reporting. By examining the impact adoption of the reporting relief has on the firm's group structure and reporting costs, it provides an evaluation of the efficacy of the deregulatory regime in terms of the benefits proclaimed by the regulator. Based on observations for the 151 largest Australian public companies between 1992 to 2007, the panel data analysis shows that adoption and usage levels vary considerably across firms, however, contrary to expectation, the reporting relief does not reduce but rather increases the cost of the audit. Further analysis suggests that heterogeneous application of the reporting relief results in less efficient reporting structures. Indeed, some corporate groups appear to be strategic rather than in pursuit of reporting cost savings in relation to their subsidiary disclosures. Overall, the deregulatory instrument is found to be ineffective as the regulator's intended cost savings do not materialise.