Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data

57 Pages Posted: 21 Sep 2009 Last revised: 9 Dec 2009

Daniel A. Bens

INSEAD

Philip G. Berger

University of Chicago - Booth School of Business

Steven J. Monahan

INSEAD

Date Written: September 1, 2009

Abstract

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.

Keywords: manufacturing plants, micro-level data, segment reporting, discretionary disclosure, agency

JEL Classification: M41, G31

Suggested Citation

Bens, Daniel A. and Berger, Philip G. and Monahan, Steven J., Discretionary Disclosure in Financial Reporting: An Examination Comparing Internal Firm Data to Externally Reported Segment Data (September 1, 2009). US Census Bureau Center for Economic Studies Paper No. CES-WP- 09-28; Chicago Booth Research Paper No. 09-46. Available at SSRN: https://ssrn.com/abstract=1476488 or http://dx.doi.org/10.2139/ssrn.1476488

Daniel A. Bens (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

Philip G. Berger

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Steven J. Monahan

INSEAD ( email )

Boulevard de Constance
PMLS 1.24
F-7705 Fontainebleau Cedex, 77305
France
+33 1 60 72 92 14 (Phone)
+33 1 60 72 92 53 (Fax)

HOME PAGE: http://www.insead.edu/facultyresearch/faculty/profiles/smonahan/

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