Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 311
Statistical analysis of financial statements has reached a high degree of sophistication. But Consolidated financial statements of a group of companies seem to be resistent against these attempts. Analysts suspect that these statements can legally be manipulated to such an extent that they present a picture that would be expected by the firm's reference groups. Thus, the analyst tries to find out to which extent the financial statements of the group has made use of legal options to present an appropriate Consolidated annual balance and income Statement. We develop two indices to measure this quality of annual reporting: the "index of publication" shows to which degree the statements meet the legal Standards, and the "degree of Camouflage" indicates how intensively a Consolidated financial Statement has made use of options which might improve the annual results. Both indices are validated in a sample of 119 Consolidated financial statements (1988). Further, in a cluster-analysis these indices were integrated with ratios of profitability, growth, and debts. This analysis gives clear indications that low economic success coincides with mediocre quality of reporting.