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The Impact of SFAS No. 131 on Information and Monitoring

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  • Philip G. Berger
  • Rebecca Hann
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    Abstract

    We investigate the effect of the Financial Accounting Standards Board's (FASB) new segment reporting standard on the information and monitoring environment. We compare hand-collected, restated SFAS 131 segment data for the final SFAS 14 fiscal year with the historical SFAS 14 data. We find that SFAS 131 increased the number of reported segments and provided more disaggregated information. Analysts and the market had access to a portion of the new segment information before it was made public, but analyst and market expectations were still altered by the mandated release of the new data. By increasing information disaggregation, the new standard induced firms to reveal previously "hidden" information about their diversification strategies. The newly revealed information affected market valuations and lead to changes in firm behavior consistent with improved monitoring following adoption of SFAS 131. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2003.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

    Volume (Year): 41 (2003)
    Issue (Month): 2 (05)
    Pages: 163-223

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    Handle: RePEc:bla:joares:v:41:y:2003:i:2:p:163-223

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    Cited by:
    1. Heitzman, Shane & Wasley, Charles & Zimmerman, Jerold, 2010. "The joint effects of materiality thresholds and voluntary disclosure incentives on firms' disclosure decisions," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 109-132, February.
    2. Marinelli, Federico, 2008. "Persistence of outstanding performance and shareholder value among diversified firms: The impact of past performance, efficient internal capital market, and relatedness of business segments," IESE Research Papers D/758, IESE Business School.
    3. Subramaniam, Venkat & Tang, Tony T. & Yue, Heng & Zhou, Xin, 2011. "Firm structure and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 759-773, June.
    4. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    5. Schmid, Markus M. & Walter, Ingo, 2009. "Do financial conglomerates create or destroy economic value?," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 193-216, April.
    6. Gao, Wenlian & Ng, Lilian & Wang, Qinghai, 2008. "Does geographic dispersion affect firm valuation?," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 674-687, December.
    7. Dragos Zelinschi & Yves Levant & Nicolas Berland, 2011. "Les motivations au découplage, au-delà de la seule quête de légitimité, l'exemple de l'introduction de l'IFRS 8," Post-Print hal-00650596, HAL.
    8. Adel Bino & Elisabeta Pana, 2011. "Firm value and investment policy around stock for stock mergers," Review of Quantitative Finance and Accounting, Springer, vol. 37(2), pages 207-221, August.
    9. François Meyssonnier & Frédéric Pourtier, 2012. "Contrôle du périmètre et périmètre de contrôle," Post-Print hal-00690972, HAL.
    10. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
    11. Eleni Vrentzou, 2011. "The effects of International Financial Reporting Standards on the notes of auditors," Managerial Finance, Emerald Group Publishing, vol. 37(4), pages 334-346, April.
    12. Hund, John & Monk, Donald & Tice, Sheri, 2010. "Uncertainty about average profitability and the diversification discount," Journal of Financial Economics, Elsevier, vol. 96(3), pages 463-484, June.
    13. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    14. Tong, Zhenxu, 2011. "Firm diversification and the value of corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 741-758, June.
    15. Stefan Erdorf & Thomas Hartmann-Wendels & Nicolas Heinrichs & Michael Matz, 2012. "Corporate Diversification and Firm Value: A Survey of Recent Literature," Cologne Graduate School Working Paper Series 03-01, Cologne Graduate School in Management, Economics and Social Sciences.
    16. Troberg, Pontus & Kinnunen, Juha & Seppänen, Harri J., 2010. "What drives cross-segment diversity in returns and risks? Evidence from Japanese and U.S. firms," The International Journal of Accounting, Elsevier, vol. 45(1), pages 44-76, March.

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