What prompts firms to choose between business and geographic segments as a primary segment?

Purpose – The purpose of this paper is to investigate what causes a firm to choose between a business segment and a geographic segment as a primary segment for its segmental information disclosure. It seeks to examine Malaysian firms' experiences as they disclose segmental information under the new accounting standard known as FRS 114, Segment Reporting. Design/methodology/approach – The paper involves 374 Malaysian public-listed companies which disclosed segmental information in their 2006 annual reports. Four hypotheses are developed to examine the influence of these five factors, namely the size of the company, listing status, financial leverage, financial performance, and industrial membership. The non-parametric test is employed to test the formulated hypotheses. Findings – The results reveal two important outcomes: first, size of company, financial performance, and industrial membership are significantly associated with the choice of a primary segment; and financial leverage of a company and listing status are not significantly associated with the choice of a primary segment. Research limitations/implications – The limited number in the sample and inherent segmental reporting problems present limitations. Practical implications – The paper implies extensive auditing work as the new standard requires more extensive disclosure for the primary segment, although the standard allows the adoption of primary segment reporting at management's discretion. Originality/value – The paper's value lies in determining what motivates a company to disclose a business segment or a geographic segment as its primary segmental reporting basis.