The Role of Segment Disclosure in Corporate Governance and its Effect on Firm Investment Efficiency

Posted: 25 Jul 2010

See all articles by Belen Blanco

Belen Blanco

The University of Adelaide

Juan M. García Lara

Universidad Carlos III de Madrid - Department of Business Administration

Josep A. Tribo

Stevens Institute of Technology

Date Written: July 25, 2010

Abstract

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

Blanco, Belen and García Lara, Juan Manuel and Tribo Gine, Josep Antonio, The Role of Segment Disclosure in Corporate Governance and its Effect on Firm Investment Efficiency (July 25, 2010). Available at SSRN: https://ssrn.com/abstract=1648427

Belen Blanco (Contact Author)

The University of Adelaide ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Juan Manuel García Lara

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Josep Antonio Tribo Gine

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States
9292708869 (Phone)
07030 (Fax)

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