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The Impact of the Management Approach on Segment Reporting

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  • Martin Bugeja
  • Robert Czernkowski
  • Daryl Moran

Abstract

Accounting standard setters have increasingly attempted to align external segment reporting disclosures to a firm's internal reporting structure. We study how this move to the management approach for segment reporting impacted the number of reported segments and the extent of line item disclosures when Australia adopted IAS 14 (revised) and IFRS 8. We find that both standards led to firms disclosing a greater number of segments. An examination of the motives behind the non-disclosure of segments suggests that segment information was withheld for agency cost reasons. We find only limited support for the proprietary cost motive for non-reporting of segments. We also document that IFRS 8 led to a reduction in the amount of line item disclosure. Consistent with a proprietary cost explanation, the decrease in disclosure is greatest for firms with a higher number of profitable segments. Our results indicate that the change to the management approach to segment identification is not associated with the properties of analyst forecasts, nor did it lead to increased analyst following.

Suggested Citation

  • Martin Bugeja & Robert Czernkowski & Daryl Moran, 2015. "The Impact of the Management Approach on Segment Reporting," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(3-4), pages 310-366, April.
    • Handle: RePEc:bla:jbfnac:v:42:y:2015:i:3-4:p:310-366
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    File URL: http://hdl.handle.net/10.1111/jbfa.12102
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    References listed on IDEAS

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    3. Joliet, Robert & Muller, Aline, 2016. "Are foreign earnings disclosures value-relevant?," Research in International Business and Finance, Elsevier, vol. 37(C), pages 170-183.
    4. Ahmed Saleh & Ahmed Aboud & Yasser Eliwa, 2023. "IFRS 8 and the cost of capital in Europe," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3198-3231, July.
    5. Farah Abd Mutalib & Hartini Jaafar, 2019. "Segment Reporting Practices and Determinants: Evidence from Malaysian Public Listed Companies," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 264-273, July.
    6. Andrea Cuccia, 2018. "Potential of IFRS 8: Managerial "customization", relevance of subsidiaries and separate financial statements," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2018(1), pages 103-131.
    7. Aboud, Ahmed & Roberts, Clare & Mansour Zalata, Alaa, 2018. "The impact of IFRS 8 on financial analysts’ earnings forecast errors: EU evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 33(C), pages 2-17.
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