Heterogeneous Investment Opportunities in Multiple-Segment Firms and the Incremental Value Relevance of Segment Accounting Data

Applying a real-options based valuation approach, we develop and test a model that addresses the incremental value relevance of segment data beyond firm-level accounting data. Prior studies (e.g., Zhang 2000; Biddle, Chen and Zhang 2001) show that equity valuation requires accounting data (in part) because accounting provides signals that guide capital investments underlying value creation. In this study, we establish that the usefulness of segment data beyond aggregate data relates to heterogeneity of investment opportunities across segments, caused by divergences of segment profitability and growth potential. Empirical results are consistent with the model's predictions. We also assess the magnitude of the valuation impact of segment information relative to that of firm-level information