An Analysis of the Proprietary Costs of Segment Reporting PDF Download
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Author: Cristi Anne Gleason
Publisher:
ISBN:
Category :
Languages : en
Pages : 196
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Book Description
Author: Cristi Anne Gleason
Publisher:
ISBN:
Category :
Languages : en
Pages : 196
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Book Description
Author: Cristi Anne Gleason
Publisher:
ISBN: 9780591969993
Category :
Languages : en
Pages : 94
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Book Description
This paper examines the proprietary costs of line-of-business (LOB) reporting. Despite research documenting many benefits of LOB reporting, no research has directly examined the proprietary costs resulting from mandatory segment reporting. My empirical examination of proprietary costs supports the theoretical expectation that the expected proprietary costs of LOB reporting exceeded expected related benefits for manufacturing firms that reported segment information only when required to do so by the SEC. Firms that elected not to report segment information voluntarily had higher levels of market power. Hence these firms faced greater expected costs from competitor entry, pressure from labor groups, suppliers and customers, and government regulation. These firms also obtained less additional financing in the years prior to the SEC requirement, consistent with lower expected benefits. However, my results do not provide any evidence that these involuntary reporters subsequently incurred the expected proprietary costs. In contrast, my results show that voluntary reporters were more likely to obtain financing during the voluntary reporting period, suggesting that differing benefits rather than proprietary costs distinguish voluntary and mandated reporters. This result is consistent with the position of the FASB and with statements made by other supporters of segment reporting, dismissing concerns over substantial competitive harm.
Author: Fatin Nur Syafiqa Anuar
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Annalisa Prencipe
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ISBN:
Category :
Languages : en
Pages : 0
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This paper aims to identify some new determinants of the quality of voluntary segment disclosure by using the theoretical framework of Proprietary Costs Theory. The identified new determinants are correspondence between segments and legally identifiable subgroups of companies, level of detail in segment definition, listing status age and growth rate. The paper also provides further evidence to test the impact of some traditional determinants, which are introduced in the model as control variables. The study is carried out in Italy, which proves to be a particularly suitable setting for the analysis because of its limited legal and professional requirements on the topic. To test the hypotheses, a sample of 67 Italian listed companies was selected and a multiple regression model was used. Except for growth rate, all the other new determinants proved to be significantly related to segment reporting quality, consistently to what hypothesized. These results confirm that proprietary costs are particularly relevant for segment reporting, thus limiting the incentive for the companies to provide this information to the market.
Author: Annalisa Prencipe
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper aims to identify new determinants of the extent of voluntary segment disclosure by using the theoretical framework of the Proprietary Costs Theory, which states that companies limit voluntary disclosure because of proprietary costs, such as preparation and competitive costs. On the basis of the existing literature on this theory and on segment reporting, three hypotheses are theoretically derived, each correlating the level of segment disclosure to a new determinant, specifically the correspondence between the segments and legally identifiable subgroups of companies, the growth rate and the listing status age. The paper also provides further evidence to test the impact of some "traditional" determinants, introduced in the study as control variables. The hypotheses formulated are empirically verified. The analysis is carried out with reference to Italy, because of its limited legal and professional provisions on the topic. For the empirical test, a sample of 64 Italian listed companies is selected and a multiple regression model is used. Results show that, except for the growth rate, the two other new determinants are significantly related to the extent of segment disclosure. These findings confirm that proprietary costs are particularly relevant and limit the incentive for companies to provide segment information to the market.
Author: Mark Aleksanyan
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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This paper contributes to the debate on segment reporting standards in the UK and Europe and, specifically, the merit of IFRS 8 relative to predecessor standards (SSAP 25 and IAS 14R). We carry out a longitudinal analysis of segment reporting practices of a large sample of listed UK companies, covering all three reporting regimes. Using the Proprietary Cost Theory (PCT) as our theoretical lens, we present evidence consistent with PCT, that proprietary costs considerations influence companies' segment disclosure choices. We show that when companies are required to disclose more detailed accounting information for geographical segments (e.g., when geography is the basis of operating segments, under IFRS 8, or primary segments, under IAS 14R), they choose to define geographical segments in broader geographic areas terms than was the case under SSAP 25. We find that although companies disclose greater quantity of segmental information under IFRS 8 and IAS 14R (than SSAP 25), the more recent standards brought about a notable reduction in (i) the level of specificity of the disclosed geographical segments, and (ii) the quantity of disclosed geographic segment profit data - one of the most important data types for users. While this may have reduced the proprietary costs of segment disclosures, the reduction in disclosure of segmental performance data may have reduced the usefulness of segment reports to investors.
Author: Philip G. Berger
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ISBN:
Category :
Languages : en
Pages :
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We exploit the change in U.S. segment reporting rules (from SFAS 14 to SFAS 131) to examine two motives for managers to conceal segment profits: proprietary costs and agency costs. Managers face proprietary costs of segment disclosure if the revelation of a segment that earns high abnormal profits attracts more competition and hence reduces the abnormal profits. Managers face agency costs of segment disclosure if the revelation of a segment that earns low abnormal profits reveals unresolved agency problems and hence leads to heightened external monitoring. By comparing a hand-collected sample of restated SFAS 131 segments with historical SFAS 14 segments, we examine at the segment level whether managers' disclosure decisions are influenced by their proprietary and agency cost motives to conceal segment profits. Specifically, we test two hypotheses: (1) when the proprietary cost motive dominates, managers tend to withhold the segments with relatively high abnormal profits (hereafter, the proprietary cost motive hypothesis), and (2) when the agency cost motive dominates, managers tend to withhold the segments with relatively low abnormal profits (hereafter, the agency cost motive hypothesis). Our results are consistent with the agency cost motive hypothesis, whereas we find mixed evidence with regard to the proprietary cost motive hypothesis.
Author: Fabio B. Gaertner
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
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In this study, we examine managers' decision to report segment-level profit on a before-tax or after-tax basis. A consequence of defining segment-level profit on an after-tax basis internally is that segment-level tax expense must be disclosed in the financial statements. Consistent with the management approach underpinning segment reporting rules, we find that firms which appear to be using an after-tax profit measure internally are more likely to report segment-level profit on an after-tax basis. However, this association is only present for operating segments that are defined on a non-geographic basis. In the sample of firms that define operating segments on a geographic basis, proprietary costs considerations, rather than internal reporting, appear to drive managers' reporting decision. Overall, our results suggest managers use discretion to reduce disclosure quality of segment-level tax information for firms with geographic-based operating segments.
Author: Philip G. Berger
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Recent studies provide evidence that the new segment reporting rule, SFAS 131, induced companies to provide more disaggregated segment information. We use adoption of the new standard to identify firms that aggregated segment information under the old standard, SFAS 14, and examine two motives for managers to aggregate segment information. First, withholding proprietary information and, second, avoiding external scrutiny from the market for corporate control. We find firms that increased their segment disclosure on adoption of SFAS 131 (i.e., firms that aggregated segment data under SFAS 14) had higher abnormal profitability and operations with more divergent performance. We do not, however, find a significant decline in abnormal profits for these firms after SFAS 131, suggesting their concerns that more disaggregated reporting would result in competitive harm were unwarranted. We also document a negative association between aggregating segment information and the probability of takeover activities in the pre-SFAS 131 period. Firms that are forced to provide more disaggregated information under the new standard face a higher takeover likelihood in the post-SFAS 131 period. These results suggest that the more disaggregated disclosure generated by the new standard facilitates the market for corporate control.
Author: Christian Leuz
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
Discretionary disclosure theory suggests that proprietary costs are an important reason why firms often withhold material information. However, empirically testing this hypothesis has proven to be difficult, due especially to the elusive nature of proprietary costs and lack of settings in which proprietary disclosures are voluntary. This paper exploits the fact that that until recently, German firms were not required to disclose business segment reports, which are generally viewed as competitively sensitive and proprietary in nature. Analyzing firms' voluntary business segment disclosures, I find evidence consistent with the proprietary cost hypothesis. As Germany now requires segment reporting by all listed firms, I also examine ex post whether segment reporting is more revealing for those firms that previously chose not to disclose. I find that firms are less likely to voluntarily provide segment reports if segment profitability is more heterogeneous and the average profitability reported in the income statement is less revealing. This finding is also consistent with the proprietary cost hypothesis and shows that segment disclosures are not governed by capital-market considerations alone. I benchmark my findings using voluntary cash flow statement disclosures. In comparison to segment reports, which likely reveal proprietary information to competitors, cash flow statements are less competitively sensitive. I find that cash flow disclosures appear to be governed primarily by capital-market considerations. This finding lends further support to the proprietary cost interpretation of the segment reporting results.
