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Voluntary Disclosure of Cash Flow Statements and Segment Data in Germany

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  • Christian Leuz

Abstract

This paper studies the incentives of German firms to voluntarily disclose cash flow statements and segment reports in the annual report. Internationally, both statements are considered important elements of financial reporting. In Germany, however, their disclosure has not been mandatory until recent legislation was introduced. This situation provides an opportunity to study the determinants of two distinct types of voluntary disclosures. While segment reports are viewed as revealing proprietary information, cash flow statements are generally considered less proprietary in nature. Given the differences between the two statements, we expect that each disclosure has different determinants. This study generally supports this conjecture. Furthermore, our results are generally consistent with more specific hypotheses derived from extant analytical models. We find that the disclosure of cash flow statements seems to be primarily governed by cost savings in private information acquisition while the disclosure of segment reports appear to be governed by proprietary costs. These findings suggest that seemingly competing disclosure theories put forth in the literature may apply to different types of information and that one has to be careful to create disclosure indices across distinct types of disclosures.

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Bibliographic Info

Paper provided by Department of Finance, Goethe University Frankfurt am Main in its series Working Paper Series: Finance and Accounting with number 21.

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Date of creation: Sep 1998
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Handle: RePEc:fra:franaf:21

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  1. Darrough, Masako N. & Stoughton, Neal M., 1990. "Financial disclosure policy in an entry game," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 219-243, January.
  2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  3. G K Meek & S J Gray, 1989. "Globalization of Stock Markets and Foreign Listing Requirements: Voluntary Disclosures by Continental European Companies Listed on the London Stock Exchange," Journal of International Business Studies, Palgrave Macmillan, vol. 20(2), pages 315-336, June.
  4. Diamond, Douglas W, 1985. " Optimal Release of Information by Firms," Journal of Finance, American Finance Association, vol. 40(4), pages 1071-94, September.
  5. Dye, Ronald A, 1986. "Proprietary and Nonproprietary Disclosures," The Journal of Business, University of Chicago Press, vol. 59(2), pages 331-66, April.
  6. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
  7. Wagenhofer, Alfred, 1990. "Voluntary disclosure with a strategic opponent," Journal of Accounting and Economics, Elsevier, vol. 12(4), pages 341-363, March.
  8. Smiley, Robert, 1988. "Empirical evidence on strategic entry deterrence," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 167-180.
  9. Verrecchia, Robert E., 1990. "Information quality and discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 12(4), pages 365-380, March.
  10. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
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Cited by:
  1. Perotti, Enrico C & von Thadden, Ernst-Ludwig, 2001. "Outside Finance, Dominant Investors and Strategic Transparency," CEPR Discussion Papers 2733, C.E.P.R. Discussion Papers.
  2. Christian Leuz, 1999. "The Development of Voluntary Cash Flow Statements in Germany and the Influence of International Reporting Standards," Working Paper Series: Finance and Accounting 40, Department of Finance, Goethe University Frankfurt am Main.

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