Measurement Errors and Information Content of Segment Reporting

Dan Givoly, Carla Hayn and Julia D'Souza
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Dan Givoly: University of California, Irvine and the Israel Accounting Standards Board
Carla Hayn: University of California
Julia D'Souza: Cornell University

Review of Accounting Studies, 2000, vol. 4, issue 1, No 2, 15-43

Abstract: Abstract This paper assesses the measurement errors inherent in segment reporting. Measurement errors are gauged by comparing the correlation of segment results with their industry to the corresponding correlation for single line-of-business firms operating in the same industry. The findings show that the measurement errors in segment information, particularly earnings, are larger than those in the financial information reported by single line-of-business firms. The cross-sectional variation in the measurement errors can be traced to cost/revenue allocations, management intervention in segment reporting, and the operational structure of multi-segment firms. Market tests indicate that the information content of segment information is inversely related to the estimated measurement errors.

Keywords: Segment Data; Transfer Price; Cost Allocation; Financial Account Standard Board; Financial Account Standard (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1009633904773

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