Effects of operating segments financials on choice of basis of segmentation and number of operating segments: a lagged analysis

Abstract

This paper investigates the effect of operating segments prior year's financials on basis of segmentation, and on creation of additional segments. We analyse financial statements of 75 non-finance companies trading on Nigerian Stock Exchange. Binomial logistic regression result suggests there is likelihood that increases in earnings before interests and taxes significantly decrease (increase) LOB/product (geographic) basis. There is likelihood that increases (decreases) in total liabilities significantly increase (decrease) LOB/product (geographic) basis. OLS regression result suggests that earnings before interests and taxes (total liabilities) decrease (increase) number of operating segments created. Revenues, book value of total assets, and depreciation and amortisation expenses have no significant effect on basis of segmentation and number of segments created. We recommend that chief operating decision makers should consider earnings before interests and taxes, total liabilities, and depreciation and amortisation expenses when segmenting operating segments and when creating operating segments.