Segment Disclosures Research Articles

DETERMINANTS OF THE QUALITY OF OPERATING SEGMENT DISCLOSURE

The Indonesian government encourages the manufacturing sector to diversify its business. The operating segments disclosures will be more important. Meanwhile, the provisions regarding this disclosure are still voluntary. There are several studies in Indonesia. However, the proxies used do not reflect the quality of the operating segment disclosures comprehensively. Therefore, this study aims to get empirical evidence on the determinants of the quality of operating segment disclosure by using Reporting Quality Index. The population was manufacturing companies listed on the IDX for 2015 - 2018. The data analysis technique uses multiple linear regression. The results show that firm size, leverage, degree of internationalization, and audit quality have a positive effect, while industry competition, profitability, and company growth have no effect on the quality of disclosure in the operating segment. This implies that external pressures have higher impact.

Major customer network structure and supplier trade credit

PurposeThis study investigates how a firm's structural embeddedness, the structural position in a supply network that consists of major customers, influences the acquisition of supplier trade credit. Specifically, this study examines how network interconnectedness, network integration and network independence of a firm affect its ability to acquire supplier trade credit.Design/methodology/approachThis study utilizes financial data from Compustat to build a longitudinal dataset of manufacturing firms from 1998 to 2013. Customer segment disclosure data are used to construct firm-level network variables. A fixed effect regression approach is used for estimation.FindingsThe study results show that network interconnectedness is negatively associated with supplier trade credit, while network integration is positively associated with supplier trade credit. Network independence does not influence the extent of supplier trade credit. The post hoc analysis shows that the effects of the hypothesized factors vary under different product categories and credit ratings.Originality/valueThis study broadens the supply chain finance literature by showing how a firm's embedded network structural position can influence its ability to obtain supplier trade credit.

The Informational Value of Segment Data Disaggregated by Underlying Industry: Evidence from the Textual Features of Business Descriptions

ABSTRACTI examine a fundamental determinant of disclosure quality: how underlying data are disaggregated. For this, I create a measure of industry disaggregation, which is the extent to which segment disclosures are disaggregated based on underlying industries. To identify underlying industries, I apply a deep learning algorithm that extracts textual features from Item 1 business descriptions, in which firms are required to accurately describe their products and services. Industry disaggregation captures the disclosure of underlying industries and the adherence to industry-based disaggregation criteria. Consistent with capital markets being informationally segmented by industry, I find that industry disaggregation is negatively associated with analyst forecast error and dispersion, and positively associated with analyst following and information transfers among analysts and investors. These findings indicate that financial information is more informative, and, thus, of higher quality, when disaggregated by standardized criteria that achieve comparability and match the information-processing strategies of capital market participants.Data Availability: Data are available from the sources identified in the paper.JEL Classifications: D89; G14; M41; M48.

A Study on Segment Disclosure Stance and Subject Following Introduction of Japanese Management Approach

A Study on Segment Disclosure Stance and Subject Following Introduction of Japanese Management Approach

Segment disclosure quality and relevance under IFRS Vs. U.S. GAAP

Both IFRS (IFRS 8) and the United States (U.S.) GAAP (SFAS 131) use similar approach for reporting segment information as a part of annual financial statements. Large and multinational firms that operate in more than one operating segment are required by IFRS and the U.S. GAAP to provide financial information about their operating segments in the notes to the annual financial statements using the “management approach.” However, the primary difference between these two pronouncements is how the management approach is implemented. Using a sample of foreign companies cross listed on the U.S. stock exchanges, we test for differences in segment financial reporting under the two sets of financial standards and how this information is valued by the market. We find significant differences in the quality and quantity of segment disclosure made by our sample firms during the fiscal year 2017 under the two sets of accounting standards. We also find that market values the choice of accounting standards as well as the overall quality/quantity of the segment disclosures. Specifically, we find that the decrease in the informativeness of earnings with IFRS as the choice of accounting standards for our sample firms. Additionally, we also find that the predictability and informativeness of earnings is increasing in the quality/quantity of the segment disclosure of the sample firm.

Are Financial Distress and Firm Characteristics Restrict The Operatin Segment Disclosure in Marine Industry?

<em>This study aims to examine the effect of financial distress and several factors on company characteristics, firm size, audit quality and public ownership at the level of disclosure of operating segments in marine companies listed on the Indonesia Stock Exchange. 24 populations were observed from 2013 to 2017 and obtained a sample of 10 marine sector companies with purposive sampling method. Observation results obtained an average operating segment disclosure rate of 69%. We found companies with financial difficulties limiting disclosure of operating segments. We also find public ownership influencing the level of disclosure of operating segments. However, it failed to prove the effect of firm size and auditor quality on the operating segment disclosure level </em>

The real effect of mandatory disclosure in Japanese firms

This study replicates the effects of mandatory segment disclosures on corporate real investment decisions in a Japanese setting. We focus on the mandatory segment disclosure changes implemented in Japan since 2011 and find that unlike the case with US firms, these disclosures have not affected the corporate investment decisions of large Japanese firms. Mandatory segment disclosures were introduced in Japan in 2011, coinciding with Great East Japan Earthquake, explaining the subsequent increase in investments. Therefore, we estimate that, based on the learning model, Japanese mandatory disclosures might be confounded by the revelatory price efficiency crowding-out effects that led to a decrease in the corporate investment of US firms.

Сегментная отчетность — одно из направлений сближения финансового и управленческого учета

Th e article is devoted to segment reporting as one of the areas of convergence of fi nancial and management accounting. It is noted that the consolidated fi nancial statements containing aggregated information are limited for making a number of economic decisions. Th e main normative documents regulating the disclosure and presentation of information by segments are considered. Attention is paid to the benefi ts and complexities associated with segment disclosures in fi nancial statements.

Nowhere to Hide: Corporate Restructuring Activities Response to Mandatory Segment Disclosure

We examine the effect of mandatory financial disclosures, specifically the segment disclosure SFAS 131, on corporate restructuring activities such as mergers and acquisitions (M&As) and spin-offs. After the implementation of the mandatory segment disclosure standard, we find that firms have less incentive to engage in M&A activities and to complete the M&A deals. However, conditional on engaging in acquisition activity, SFAS 131 drives firms to acquire large diversified targets. The market perceives these large diversified M&As as value- enhancing after the SFAS131. Similarly, we further show that the probability of a division being spun off is lower after the SFAS 131 adoption than that before the SFAS 131 adoption, suggesting that firms are more likely to spin off their different operating units ex-ante to avoid disclosing these unit’s information and to strengthen their public image ex-post. We also find a positive market reaction to spin-off events, especially after the SFAS 131 was mandated. Overall, our results suggest that the segment disclosure standard disciplines managers’ (value- enhancing) corporate restructuring activities.

The tradeoff between relevance and comparability in segment reporting

The rule change for segment reporting in 1998 has arguably made segment reporting more relevant through the adoption of the management approach. Meanwhile, the management approach has resulted in a decrease in the comparability of segment income. We introduce firm-specific measures of changes in relevance and comparability due to the rule change. Our treatment firms experienced an increase in the relevance of segment reporting but a large decrease in the comparability of segment income; our benchmark firms barely experienced any changes in relevance and comparability. We examine earnings forecasts before vs. after the rule change issued by financial analysts—a major user group of segment reporting. Relative to benchmark firms, treatment firms’ analyst forecast error reductions around the segment disclosure event are not significantly different after the rule change than before the rule change, but treatment firms’ forecast dispersion reductions around the segment disclosure event are significantly larger after the rule change than before the rule change. These results suggest that despite the decrease in comparability, the new segment reporting rule has increased the decision usefulness of segment information by decreasing disagreement among analysts.

Corporate Diversification and Capital Structure

We examine how corporate diversification affects financial leverage. Our results suggest economically large financing advantages of diversified firms, which allow them to borrow more than comparable focused firms. We identify causal effects in a novel shock-based difference-in-differences design using the introduction of new segment reporting standards (SFAS No. 131) as a quasi-natural experiment. SFAS 131 forced some firms to reveal previously hidden information about their level of firm diversification to outsiders, allowing us to exploit plausibly exogenous variation in a firm’s observed diversification status. Firms that newly reveal information about their diversification strategies substantially increase leverage after the introduction of the new standard. We use standalone firms whose segment disclosures were unaffected by SFAS 131 as a counterfactual. Our findings identify cash flow coinsurance as the main channel of the effect. Agency problems at the divisional level can offset the positive effect of the coinsurance channel.

Real Effects of Disclosure Regulation: Evidence from U.S. Import Competition

This paper investigates the impact of disclosure regulation on import competition. Using the segment disclosure regulation (SFAS 131) as a plausibly exogenous shock that increases the supply of mandatory information about U.S. product markets, I uncover an increase in U.S. import competition at the industry level. Consistent with foreign competition, the effect is more pronounced in industries with high labor intensity and in industries with low competition, where foreign firms have a greater incentive to compete with U.S. firms. Consistent with learning from disclosures, the effect is stronger in industries with high demand uncertainty and in industries with high trade policy uncertainty, where learning to reduce uncertainty is more beneficial. In addition, I provide evidence that the segment disclosure regulation generates negative spillover effects on the performance and investment of U.S. firms that are not directly affected by the regulation through its impact on import competition.

Intensive Board Monitoring, Investor Protection and Segment Disclosure Quality: Evidence from EU

This study examined the association between intensive board monitoring (IBM) and segment disclosure quality (SDQ). It also investigated whether this association can be moderated by firm's home country investor protection (IP) level. Based on a panel of 271 non-financial European Union (EU) listed corporations covering the 2007–2012 period, this study estimated two multiple regression models including industry and year fixed effects. We found evidence that the segment disclosure quality is higher when a majority of outside directors serve on monitoring committees. We, also, found that the positive association between IBM and SDQ is more pronounced for firms in a weak IP environment and less pronounced for firms in a strong IP environment. Thus, we provided evidence in favor of a substitutive relationship between IBM and IP level with respect to their association with SDQ. Our findings are evidenced by several robustness tests.

Does location matter for disclosure? Evidence from geographic segments

AbstractThe segment disclosures of multinational companies provide strategic information. We use the location characteristics of geographic segments to identify the reasons for withholding or disclosing segments. We examine segment data from around the adoption of IFRS 8, a reporting standard that requires firms to reveal more disaggregated information. Consistent with a proprietary cost motive for nondisclosure, we find that segments in regions that are deemed better for business tend to be hidden, while higher entry barriers for a segment are positively related to disclosure. These effects appear to be stronger for firms for which proprietary cost motives are more important. Among the previously unrevealed segments, proprietary costs explain the nondisclosure of segment earnings and other relevant financial information for investors.

The Tradeoff between Relevance and Comparability in Segment Reporting

The rule change for segment reporting in 1998 has arguably made segment reporting more relevant through the adoption of the management approach. Meanwhile, the management approach has resulted in a decrease in the comparability of segment income. We introduce firm-specific measures of changes in relevance and comparability due to the rule change. Our treatment firms experienced an increase in the relevance of segment reporting but a large decrease in the comparability of segment income; our benchmark firms barely experienced any changes in relevance and comparability. We examine earnings forecasts before vs. after the rule change issued by financial analysts—a major user group of segment reporting. Relative to benchmark firms, treatment firms’ analyst forecast error reductions around the segment disclosure event are not significantly different after the rule change than before the rule change, but treatment firms’ forecast dispersion reductions around the segment disclosure event are significantly larger after the rule change than before the rule change. These results suggest that despite the decrease in comparability, the new segment reporting rule has increased the decision usefulness of segment information by decreasing disagreement among analysts.

DISCLOSURE OF IRS POST SEGMENT CONVERGENCE

The purpose of this study is to examine what extent of disclosure segmental reporting after IFRS convergence in Indonesia. The great value of this study is highlighted by the effort to empirically investigate the beginning impact of segmental disclosure standard to segment number. Descriptive analysis was used to describe changes of Line Of Business (LOB) segment, geographical segment, level of specificity number. The study consist of 32 Multinational company that listing in Indonesian Stock Exchange (ISE) at 2012-2017. Thus result show that number and types of segments reported decrease 4% for LOB and 2% for geographic segment and using more disaggregated at geographic level. Those findings about changing can help to lead an insight of segmental disclosure implementation in the future.

Managers’ segment disclosure choices under IFRS 8: EU evidence

We examine the impact of proprietary and agency cost motives on segment disclosure quality and quantity and how the adoption of the principle IFRS 8 affects this impact. By using hand-collected data, our results show that proprietary and agency costs play a relevant role in determining the quality and quantity of segment disclosure. We find that proprietary costs are a particularly relevant reason for providing lower segment disclosure quality post-IFRS 8. Our results also suggest that firms’ segment disclosure choice is dependent on disclosure dimension. These results contribute to the ongoing debate regarding IFRS 8 and have valuable implications for accounting regulators.

Geographic Segment Disclosure in Indonesia

The purpose of this study was to examine how Indonesian MNCs (Multinational Companies) disclosed geographic information segment. The significance of this study is highlighted by the effort to empirically investigate the initial impact of Indonesian geographic condition and Indonesian company’s behavior to respond that. Descriptive analysis was used to describe how geographic segment was used in Indonesia. The population of this study were 30 multinational companies listed in Indonesia Stock Exchange (IDX) in the period of 2015-2017. The results showed that most companies used LOB, only 18.75% of which used geographic as the main segment. They tend to disclose geographic information consistently in the number and level of specificity. The companies that used it as a secondary segment revealed a geographic basis with details, but not at a geographic level. It is the company's defense mechanism in responding to user needs and threats from competitors. Those findings help to lead a new insight regarding the implementation of segmental disclosure in the future.

Financial statement comparability and segment disclosure

Statement of Financial Accounting Standards (FAS) No. 131, Disclosures about Segments of an Enterprise and Related Information (FASB [1997]), reestablishes standards for how public business enterprises report segment information in financial statements. A prevailing criticism of FAS 131 is that it likely reduces financial statement comparability for firms with similar lines of business. This study estimates comparability of accounting disclosures surrounding the implementation of FAS 131 to examine potential variation in comparability associated with the segment reporting regime shift. Financial statement comparability is operationalized following the De Franco et al. (2011) accounting system comparability measure as the degree that firms have similar mappings for economic performance into financial statements. Results indicate decreased comparability for firms following FAS 131 adoption. Specifically, segment information reformulated according to how companies manage their businesses marginally limits this reduction in comparability, but greater segment information disaggregation through an increase in the number of reported segments attributed to FAS 131 application diminishes comparability overall. This study contributes to the standard setting process, as the FASB has assigned comparability to an important position in its conceptual framework and has made the goal of increasing comparability a vital component of its agenda that drives the need for accounting standards.

A Process-Based Approach to Segment Disclosures in Seasonal Industries

A Process-Based Approach to Segment Disclosures in Seasonal Industries