Representationally Faithful Disclosures, Organizational Design and Managers' Segment Reporting Decisions

52 Pages Posted: 22 Sep 2008 Last revised: 2 Apr 2009

See all articles by Christine Botosan

Christine Botosan

Financial Accounting Standards Board

Susan McMahon

University of Utah

Mary Harris Stanford

Texas Christian University - Department of Accounting

Date Written: January 1, 2009

Abstract

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

Botosan, Christine and McMahon, Susan and Stanford, Mary, Representationally Faithful Disclosures, Organizational Design and Managers' Segment Reporting Decisions (January 1, 2009). AAA 2009 Financial Accounting and Reporting Section (FARS) Paper, Available at SSRN: https://ssrn.com/abstract=1272091 or http://dx.doi.org/10.2139/ssrn.1272091

Christine Botosan (Contact Author)

Financial Accounting Standards Board ( email )

401 Merritt 7
PO Box 5116
Norwalk, CT 06856
United States

Susan McMahon

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

Mary Stanford

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7483 (Phone)

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