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The Effect of SFAS No. 131 on the Cross-segment Variability of Profits Reported by Multiple Segment Firms

Author

Listed:
  • Michael L. Ettredge

    (University of Kansas)

  • Soo Young Kwon

    (Korea University)

  • David B. Smith

    (University of Nebraska at Lincoln)

  • Mary S. Stone

    (University of Alabama)

Abstract

Our study assesses whether SFAS No. 131 improved disclosure about the diversity of multiple segment firms’ operations. We find a post-SFAS No. 131 increase in cross-segment variability of segment profits, an increase in the association between reported and inherent cross-segment variability, and an increase in association between reported variability and capital market incentives to disclose. We interpret the results as evidence that SFAS No. 131 increased the transparency of segment profitability disclosures, and as indicating SFAS No. 131 allowed firms depending more on external financing to disclose more about differences in segment profitability.

Suggested Citation

  • Michael L. Ettredge & Soo Young Kwon & David B. Smith & Mary S. Stone, 2006. "The Effect of SFAS No. 131 on the Cross-segment Variability of Profits Reported by Multiple Segment Firms," Review of Accounting Studies, Springer, vol. 11(1), pages 91-117, March.
    • Handle: RePEc:spr:reaccs:v:11:y:2006:i:1:d:10.1007_s11142-006-6397-9
    DOI: 10.1007/s11142-006-6397-9
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    References listed on IDEAS

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    1. Philip G. Berger & Rebecca Hann, 2003. "The Impact of SFAS No. 131 on Information and Monitoring," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 41(2), pages 163-223, May.
    2. Ettredge, Michael & Kwon, Soo Young & Smith, David, 2002. "Security Market Effects Associated with SFAS No. 131: Reported Business Segments," Review of Quantitative Finance and Accounting, Springer, vol. 18(4), pages 323-344, June.
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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