Segment reporting in a developing economy: the Indian banking sector

Abstract

Purpose The purpose of this paper is to investigate the value relevance of segment information for both public and private sector banks in India. In doing so, this paper examines a rapidly developing economy and perhaps its most critical sector during this period of strong economic growth. Design/methodology/approach In this study uses the simplified Ohlson model, for a sample of 136 private sector and public sector banks for the period 2007-2010 in India. Findings The paper finds that public sector banks have higher share prices, higher earnings and more equity compared with private sector banks. Segment earnings data is highly value relevant for both sectors; however, segment equity data is only marginally value relevant for Indian banks. The number of segments is also value relevant and associated with higher share prices. Originality/value The results of this study contribute additional evidence to the literature on segment reporting by studying the effect of adoption of segment reporting in an emerging market. Findings from the paper are particularly relevant as India is currently in the process of changing its segment reporting requirements and moving to an IFRS-based segment standard.

The extent of segmental reporting and its value relevance: cross-country evidence

“…The findings reveal that segmental disclosure (including the number of segments and the segment-related accounting details) for both Jordanian and Qatari listed firms, is both value relevant and significantly associated with share prices. These findings support prior studies (Chen and Zhang, 2003;Hossain and Marks, 2005;Hossain, 2008;Hope et al, 2008;Birt and Shailer, 2011;Kajüter and Nienhaus, 2017;Birt et al, 2017) which investigated the association between segment data and share prices. Results for these two developing countries in the Middle East are thus similar to findings relating to other developed and emerging nations.…”

“…They found that the amount of segmental information declined under IFRS 8, but the disclosures provided were value relevant. Birt et al (2017) have also examined the value relevance of segmental reportingonly for Indian banksand found that the number of segments for which disaggregated information was supplied was value relevant and was associated with higher share prices. The current study extends the literature by investigating the value relevance of segmental reporting following the post-implementation review of IFRS 8 across sectors and countries.…”

“…Hence, choosing such countries for the current investigation contributes to the existing literature by analyzing the impact of the standard in an emerging market setting, which should be familiar with the pronouncements of the IASB following the completion of the post-implementation review. Finally, studies in this area tend to emphasize the financial sector in their investigations and non-financial firms are often ignored (Birt et al, 2017). The current study adopts a more comprehensive approach that includes both financial and non-financial companies in the sample.…”

“…Finally, studies in this area tend to emphasize the financial sector in their investigations and nonfinancial firms are often ignored (Birt et al, 2017). The current study adopts a more comprehensive approach that includes both financial and non-financial companies in the sample.…”

Patterns of institutional change - the case of accounting regulation in BRICS countries

“…e In 2001, the Institute of Chartered Accountants of India (ICAI) implemented the obligation for segment reporting in the standard AS 17 -Segment Reporting (Reddy and Satish, 2001). With the harmonisation to IFRS, Ind AS 108 -Operating Segments has been in effect since April 1st, 2011, which requires companies to report both product and service-related segments and geographical segments (Birt et al, 2017). f All elements of the remuneration structure of the individual members of the management board have to be disclosed under main categories such as salary, benefits, bonuses, stock options and pensions in the annual financial statements [Chakrabarti et al, (2012); Clause 49 IV E (ii), entered into force on February 21st, 2000].…”