The Antecedents and Market Impact of Changes in Segment Disclosure: Two Essays

This set of two essays addresses questions about the impact of SFAS No. 131, which provides the current GAAP for segment reporting. Many firms enhanced their segment reports in compliance with SFAS No. 131, while some did not. The first essay documents the impact of the new standard on the market for stocks of firms that began reporting disclosure for multiple segments (Change firms) compared to that of firms that did not report multiple business segments (Control firms). Share volume and price increased abruptly following release of the new disclosure while volatility and the adverse selection component of the bid-ask spread decreased. These changes were significant for subsets of Change firms identified as being more likely to face information asymmetry problems (i.e., low capitalization and high bid-ask spread firms). The second essay compares firms segment disclosures from pre- to post-implementation of the standard. Newly-reported segments tend to be smaller than previously-disclosed segments, and they are often combined with larger segments in a related industry prior to implementation of the standard. Firms providing relatively aggregated segment reports tend to be large, to have international operations, and complex operating structures compared to firms providing more detailed disclosures in the pre-SFAS No. 131 period.