Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data
Daniel A. Bens
Philip G. Berger
University of Chicago - Booth School of Business
Steven J. Monahan
September 1, 2009
US Census Bureau Center for Economic Studies Paper No. CES-WP- 09-28
Chicago Booth Research Paper No. 09-46
We use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms’ plant-level data to their published segment reports, conducting our tests by grouping a firm’s plants that share the same four-digit SIC code into a “pseudo-segment.” We then determine whether that pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes. We find pseudo-segments are more likely to be aggregated within a line-of-business segment when the agency and proprietary costs of separately reporting the pseudo-segment are higher and when firm and pseudo-segment characteristics allow for more discretion in the application of segment reporting rules. For firms reporting multiple external segments, aggregation of pseudosegments is driven by both agency and proprietary costs. However, for firms reporting a single external segment, we find no evidence of an agency cost motive for aggregation.
Number of Pages in PDF File: 57
Keywords: manufacturing plants, micro-level data, segment reporting, discretionary disclosure, agency
JEL Classification: M41, G31
Date posted: September 21, 2009 ; Last revised: December 9, 2009
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