We examine a sample of Canadian firms that have finance subsidiaries. More than forty percent of these firms did not consolidate their finance subsidiaries at a time when the exclusion from consolidation of subsidiaries was permitted on the grounds that they were in significantly different lines of business. The practice of excluding such firms from consolidation on these grounds is still prevalent in a number of European countries.

Results show that the level of indebtedness, firm size, ownership structure and the extent of credit activities influence the decision relating to the inclusion or exclusion of finance subsidiaries from consolidation. These results suggest avenues of research in our attempt to gain a better understanding of accounting choices that lead to off-balance-sheet financing.