Representationally Faithful Disclosures, Organizational Design and Managers' Segment Reporting Decisions
52 Pages Posted: 22 Sep 2008 Last revised: 2 Apr 2009
Date Written: January 1, 2009
By prescribing a management approach, SFAS No. 131 calls for segmentation that more faithfully reflects firms' organizational design. This study evaluates the success of SFAS No. 131 in inducing firms to disclose more about their organizational design. We find that firms that changed their segment disaggregation in response to SFAS No. 131 increased the relatedness of operations combined in segments suggesting that their external reporting is more aligned with their internal organizational structures. We also find that firms reporting a single segment under SFAS No. 14 but multiple segments under SFAS No. 131 tended to hide certain operations under SFAS No. 14. Finally, we provide evidence that firms that did not change their segment definitions in response to SFAS No. 131, combine more dissimilar operations that likely deviate from their internal organizational structures to a greater extent than firms that changed their segment definitions in response to SFAS No. 131.
Keywords: Segment, disclosure, SFAS No. 131, SFAS No. 14
JEL Classification: M40, M41, M44, M46
Suggested Citation: Suggested Citation