The Effect of SFAS No. 131 on the Cross-segment Variability of Profits Reported by Multiple Segment Firms

Michael L. Ettredge (), Soo Young Kwon, David B. Smith and Mary S. Stone
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Michael L. Ettredge: University of Kansas
Soo Young Kwon: Korea University
David B. Smith: University of Nebraska at Lincoln
Mary S. Stone: University of Alabama

Review of Accounting Studies, 2006, vol. 11, issue 1, No 5, 117 pages

Abstract: Abstract Our study assesses whether SFAS No. 131 improved disclosure about the diversity of multiple segment firms’ operations. We find a post-SFAS No. 131 increase in cross-segment variability of segment profits, an increase in the association between reported and inherent cross-segment variability, and an increase in association between reported variability and capital market incentives to disclose. We interpret the results as evidence that SFAS No. 131 increased the transparency of segment profitability disclosures, and as indicating SFAS No. 131 allowed firms depending more on external financing to disclose more about differences in segment profitability.

Keywords: Segment reporting; SFAS No. 131; Transparency; Proprietary costs (search for similar items in EconPapers)
JEL-codes: D21 D78 M41 (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1007/s11142-006-6397-9

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