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Financial statement presentation of discontinued operations: Determinants and consequences

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  • Guragai, Binod
  • Attachot, Weerapat
  • Peabody, S. Drew

Abstract

US GAAP requires firms to separately report income from discontinued operations within the income statement. Current financial reporting guidance, however, allows managers to either aggregate or disaggregate operating income (or loss) and gain (or loss) from discontinued operations on the face of the income statement. Using this unique setting, we hand-collect data on the presentation of discontinued operations (i.e., aggregated versus disaggregated presentation) to understand factors that affect the discretionary presentation choices in financial statements. We show that managers' disaggregation preference in reporting discontinued operations reflect properties of prospect theory and mental accounting theory. We fail to find empirical evidence that investors' valuation of discontinued operations is different for aggregated and disaggregated presentations. These results should help managers, regulators, and investors understand the implications of discontinued operations' presentation choices in financial reporting.

Suggested Citation

  • Guragai, Binod & Attachot, Weerapat & Peabody, S. Drew, 2020. "Financial statement presentation of discontinued operations: Determinants and consequences," Advances in accounting, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:advacc:v:49:y:2020:i:c:s0882611020300420
    DOI: 10.1016/j.adiac.2020.100472
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    Cited by:

    1. Brooke Beyer & Binod Guragai & Eric T. Rapley, 2021. "Discontinued operations and analyst forecast accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 595-627, August.

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