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Measurement Errors and Information Content of Segment Reporting

Author

Listed:
  • Dan Givoly

    (University of California, Irvine and the Israel Accounting Standards Board)

  • Carla Hayn

    (University of California)

  • Julia D'Souza

    (Cornell University)

Abstract

This paper assesses the measurement errors inherent in segment reporting. Measurement errors are gauged by comparing the correlation of segment results with their industry to the corresponding correlation for single line-of-business firms operating in the same industry. The findings show that the measurement errors in segment information, particularly earnings, are larger than those in the financial information reported by single line-of-business firms. The cross-sectional variation in the measurement errors can be traced to cost/revenue allocations, management intervention in segment reporting, and the operational structure of multi-segment firms. Market tests indicate that the information content of segment information is inversely related to the estimated measurement errors.

Suggested Citation

  • Dan Givoly & Carla Hayn & Julia D'Souza, 2000. "Measurement Errors and Information Content of Segment Reporting," Review of Accounting Studies, Springer, vol. 4(1), pages 15-43, January.
    • Handle: RePEc:spr:reaccs:v:4:y:2000:i:1:d:10.1023_a:1009633904773
    DOI: 10.1023/A:1009633904773
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