Managers’ Segment Financial Reporting Choice: An Analysis Of Firms’ Segment Reconciliations

Journal of Applied Business Research, Vol. 28, No. 6, November/December 2012

63 Pages Posted: 7 Apr 2011 Last revised: 7 Mar 2013

See all articles by Elio Alfonso

Elio Alfonso

Florida International University

Dana Hollie

The University of Toledo

Shaokun Carol Yu

Northern Illinois University

Date Written: May 13, 2011

Abstract

Under SFAS No. 131, a company is required to provide a reconciliation of the total of the reportable segments’ profit or loss to the firm’s consolidated income. This paper investigates these segment disclosures and related determinants of managers’ segment financial reporting choices. We focus on managers’ decisions to report segment-to-firm level reconciliations (i.e., segment reconciliations (SERs)) – differences between firm-level and aggregated segment-level earnings. On average, we find that SERs are significant when the differences are not equal to zero. Firms with higher agency costs and greater accruals are less likely to report segment reconciliations. However, firms that have a greater number of segments, larger firms, and firms with higher leverage, losses, and greater earnings volatility are more likely to report SER≠0. Consistent with managers having some segment reporting discretion, our overall findings suggest a manager’s segment reporting choice is partly driven by agency costs. Interestingly, among firms with reported segment reconciliations, firms with higher agency costs are more likely to report positive SERs. Consequently, this study documents a relation between proxies for agency costs and managers’ decisions to report segment reconciliations. Policy implications and suggestions for future research are discussed in the paper.

Keywords: SFAS No. 131, Segment Reconciliation, Segment Reporting, Determinants, GAP

JEL Classification: M41

Suggested Citation

Alfonso, Elio and Hollie, Dana and Yu, Shaokun Carol, Managers’ Segment Financial Reporting Choice: An Analysis Of Firms’ Segment Reconciliations (May 13, 2011). Journal of Applied Business Research, Vol. 28, No. 6, November/December 2012, Available at SSRN: https://ssrn.com/abstract=1804463 or http://dx.doi.org/10.2139/ssrn.1804463

Elio Alfonso

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Dana Hollie (Contact Author)

The University of Toledo ( email )

College of Business and Innovation
2801 W. Bancroft
Toledo, OH 43606
United States

Shaokun Carol Yu

Northern Illinois University ( email )

College of Business
DeKalb, IL 60115
United States
815-753-1538 (Phone)
815-753-8515 (Fax)

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