The Role of Segment Disclosure in Corporate Governance and its Effect on Firm Investment Efficiency
Posted: 25 Jul 2010
Date Written: July 25, 2010
We investigate the role of segment disclosure, as a corporate governance mechanism, in enhancing investment efficiency, and whether and how corporate governance mechanisms ameliorate or exacerbate under-investment and over-investment problems. Using a large US sample for the period 2001-2006, we find that firms providing better segment disclosure quality invest more efficiently. We provide empirical evidence that under too tight mechanisms to monitor managers’ decisions, managers are likely to behave in a defensive or aggressive way, exacerbating under-investment and over-investment problems. Finally, we find that segment information quality plays a crucial role to avoid investment inefficiencies under excessive monitoring.
Keywords: Segment Disclosure, Investment Efficiency, Corporate Governance, Overinvestment, Underinvestment, Cash Flow Sensitivity
JEL Classification: G10, G31, M41
Suggested Citation: Suggested Citation