Segment Disclosure and Cost of Capital

Blanco, Belén; Lara, Juan Manuel Garcı́a; Tribó, Josep A.

doi:10.1111/jbfa.12106

Cited by 58 publications

(46 citation statements)

References 112 publications

(178 reference statements)

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“…Given the critique of the value relevance approach (e.g., Holthausen and Watts, 2001), we also use a supplementary analysis of information asymmetries to gauge the usefulness of segment reports under the management approach for investors. Following Blanco et al (2015), we believe that segment reports under the management approach impact information asymmetry through two channels. First, an improvement in a firm's information environment permits a more precise estimation of future cash flows and thereby leads to a reduction in estimation risk.…”

Section: Supplementary Information Asymmetry Analysismentioning

confidence: 99%

The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports

Kajüter

Nienhaus

2017

Abacus

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We analyze the impact of IFRS 8 on the usefulness of segment reports from an investor's perspective. The analysis comprises three steps. First, we compare the value relevance of segment reports before and after the introduction of IFRS 8. Second, we analyze a treatment group of firms that had to change their segmentation upon IFRS 8 adoption and a control group that was unaffected by its introduction. Third, the requirement to report financial information for the current and previous year under current accounting rules allows us to analyze a unique data set of segment reports for the same company and the same year under two different standards. Our results based on German listed firms show superior value relevance of segment reports according to IFRS 8 compared to IAS 14 in all three steps. Additional analyses suggest that the adoption of IFRS 8 is also related to a decline in information asymmetry. Our findings are robust to a number of alternative specifications.

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Section: Supplementary Information Asymmetry Analysismentioning

confidence: 99%

The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports

Kajüter

Nienhaus

2017

Abacus

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“…The impact of higher quality segment disclosures on a firm's cost of capital is investigated in Blanco et al (2015). Using a proxy for a firm's voluntary reporting of segment information, they report a negative association between the extent of voluntary segment disclosures and estimates of a firm's ex-ante cost of capital.…”

Section: (Iv) Impact Of Segment Disclosures On the Information Enviromentioning

confidence: 99%

“…Finally, we add to the growing body of literature examining the consequences of the adoption of IFRS 8 (Blanco et al, 2015;and Leung and Verriest, 2015). Firstly, prior research examining the effects of the adoption of IAS 14R and IFRS 8 is typically based on a small sample of large listed firms and does not examine the motivations behind the prior nondisclosure of segments.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of the Management Approach on Segment Reporting

Bugeja¹,

Czernkowski²,

Moran

2015

Business Fin & Account

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Accounting standard setters have increasingly attempted to align external segment reporting disclosures to a firm's internal reporting structure. We study how this move to the management approach for segment reporting impacted the number of reported segments and the extent of line item disclosures when Australia adopted IAS 14 (revised) and IFRS 8. We find that both standards led to firms disclosing a greater number of segments. An examination of the motives behind the non‐disclosure of segments suggests that segment information was withheld for agency cost reasons. We find only limited support for the proprietary cost motive for non‐reporting of segments. We also document that IFRS 8 led to a reduction in the amount of line item disclosure. Consistent with a proprietary cost explanation, the decrease in disclosure is greatest for firms with a higher number of profitable segments. Our results indicate that the change to the management approach to segment identification is not associated with the properties of analyst forecasts, nor did it lead to increased analyst following.

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“…Based on this evidence, we argue that there is a greater necessity for information that is required to monitor management in highly profitable industries than in those experiencing fierce rivalry. Given that companies benefit from the fulfilment of the owners' need for information (e.g., Botosan, 1997;Francis et al, 2008;Blanco et al, 2015), we expect that industry profitability creates incentives to disclose linked to the potential agency conflicts and the associated need for information to control managers. Provided that corporate disclosure policies are responsive to owners' demand for information, as documented by extant literature (e.g., Frost and Pownall, 1994;Bushee et al, 2003), this association translates into a positive relationship between corporate disclosure and industry profitability.…”

Section: (A) Industry Profitabilitymentioning

confidence: 99%

Multidimensional Competition and Corporate Disclosure

Muiño¹,

Nickel

2016

Business Fin & Account

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Abstract:In this paper, we argue that the influence product market competition exerts on disclosure is defined by the combined effect of the incentives and disincentives to disclose raised by the multiple competition dimensions. We distinguish between firm-and industry-level competition measures, and we hypothesize that the former raises agency and proprietary costs, whereas the latter creates incentives to disclose either to fulfil the owners' need for information to monitor managers or to deter the entrance of new competitors in the industry. Our research design allows for non-monotonic relationships between competition and disclosure as well as for interactions between competition dimensions. Using a sample of US manufacturing companies, we gather evidence that is consistent with our hypotheses. First, we find an inverted U-shape relationship between corporate disclosure and a firm's abnormal profitability, which is suggestive of firms being reluctant to disclose when they are underperforming (outperforming) their rivals because of the fear of unveiling agency conflicts (raising proprietary costs). Second, we observe a U-shape relationship between corporate disclosure and industry profitability, although this U design evolves to approximate a rising function as the protection provided by entry barriers increases.

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Segment Disclosure and Cost of Capital

Cited by 58 publications

References 112 publications

The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports

The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports

The Impact of the Management Approach on Segment Reporting

Multidimensional Competition and Corporate Disclosure

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