Research has revealed that reporting the financial statements as a single consolidating entity could bring positive implications. It is apparent that consolidated statements can deliver a brief overview of the entire group to creditors and the share holders as oppose to numerous standalone financial reports. Not only would the companies that under the control of parent be reported in the consolidated financial statements,but the financial results of entities over which the parent firm has substantial influence will also be included.It allows interested investors and professional analysts to assess how well the parent company is performing in resources allocation and investment management and whether the entire group is financiallyhealthy or not.Since all intra-group transactions including unrealised profits are eliminated during the process of consolidation, the aggregated statements are simplified for the convenience of objective analysis.
Moreover, the consolidated statements can effectively offset the loss in the parent company against the positive performance of outside investees, vice versa. Mishkin (1999) believes that there is a latent benefit behind the financial consolidation, especially for the financial system. Through consolidation, it is likely to increase the diversification of activities of the parent and minimise the riskiness aligned with the profit and thus reduce the probability of failure of financial institutions. If one institution, let’s say a bank, is involved in both banking and insurance business, the banking business is presumed to be prospered when there is a significant amount of insurance claims.