A Lobbying Approach to Evaluating the Competitive Harm of Mandatory Disclosure of Proprietary Information: The Case of Segment Reporting

Abstract

Using the adoption of SFAS 131 as a shock to segment reporting and a sample of firms that lobbied against the new standard on the grounds of proprietary costs, I test for changes in profitability around SFAS 131 to examine whether reporting mandates affect disclosing firms’ competitive position. I find that operating performance declined for firms that had lobbied against the rule but were forced to increase disaggregated segment information upon adopting SFAS 131. The effect is more pronounced for firms that were forced to increase the number of reportable segments to a greater extent. Moreover, the declined operating performance arises from lower sales growth and reduced profit margin. In contrast, I do not find significant changes in operating performance for firms that had lobbied against the rule but were able to resist the change in segment reporting. These findings lend support to concerns about competitive harm of reporting mandates.