The Quality and Information Content of Segment Reporting

This paper assesses the quality of segment reporting using a measure based on the correlation between the performance of the segment and its industry. The findings show that the quality of segment information particularly earnings is lower than that of stand-alone firms. The difference is attributed both to measurement errors as well as to the operational structure of multi-segment firms. The results also suggest that stock market considerations and political costs play a role in segment reporting. Market tests indicate that the information content of segment information is inversely related to its quality