The usefulness of Non-IFRS segment data

Abstract

A controversial aspect of International Financial Reporting Standard (IFRS) 8 allows firms to define their segment profit (or loss) on a different basis than IFRS measurement and recognition principles, but whether these non-IFRS segment data are useful is in large part unexplored. We fill this gap by investigating the usefulness of non-IFRS segment data from the perspective of financial analysts. Using hand-collected segment data on a sample of European multi-segment firms, we find empirical evidence that non-IFRS segment data lead to less accurate analyst forecasts. Additionally, we find that non-IFRS segment data are associated with higher forecast dispersion, higher uncertainty in analysts’ forecasts, and a lower precision of analysts’ public information set. Collectively, our findings suggest that non-IFRS segment data impair analysts’ information environment, which casts doubt on their usefulness.