Using retroactive disclosures required by Statement of Financial Accounting Standards (SFAS) No. 131, we examine managers' incentives for withholding segment information under SFAS No. 14 and the impact of SFAS No. 131 on analysts' information environment for a sample of firms that previously reported as single‐segment firms and initiated segment disclosure with SFAS No. 131. We examine this set of firms because they likely had the strongest incentives to withhold segment information and analysts potentially had the most to gain when these firms were forced to begin providing segment disclosures under SFAS No. 131. We find that these firms used the latitude in SFAS No. 14 to hide profitable segments operating in less competitive industries than their primary operations. However, we find no evidence to suggest that these firms used the latitude in SFAS No. 14 to mask poor performance. In contrast, our results suggest that by withholding segment information, these firms allowed themselves to appear as if they were underperforming their competition when this was not the case. Thus, their decision to withhold segment disclosures under SFAS No. 14 appears to be motivated by a desire to protect profits in less competitive industries. In terms of the impact of SFAS No. 131 on analysts' information environment, our evidence suggests that SFAS No. 131 increased analysts' reliance on public data, but we provide weak evidence to suggest that this shift may have come at the cost of a marginal increase in overall uncertainty and squared error in the mean forecast.
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1 July 2005
Research Article|
July 01 2005
Managers' Motives to Withhold Segment Disclosures and the Effect of SFAS No. 131 on Analysts' Information Environment
Christine A. Botosan;
Christine A. Botosan
aUniversity of Utah.
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Mary Stanford
Mary Stanford
bTexas Christian University.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2005
The Accounting Review (2005) 80 (3): 751–772.
Citation
Christine A. Botosan, Mary Stanford; Managers' Motives to Withhold Segment Disclosures and the Effect of SFAS No. 131 on Analysts' Information Environment. The Accounting Review 1 July 2005; 80 (3): 751–772. https://doi.org/10.2308/accr.2005.80.3.751
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