Proprietary Costs & Governance on the Segment Disclosure Decision
51 Pages Posted: 17 Oct 2014
Date Written: March 31, 2012
Focusing on the Spanish setting, traditionally characterized by high ownership concentration and a regulatory framework which has traditionally given more priority to the avoidance of proprietary and competition costs related to segment disclosures than promoting transparency, this paper aims to identify the main factors influencing the segment reporting decision. In particular, we aim to test whether the strength of the concentrated ownership structures together with the remaining pre-IAS reporting philosophy offsets the role of independent directors. If this is the case, it would be in spite of the new IAS/IFRS reporting standards based on relevance and transparency, and would also run counter to the improvements in the Spanish governance framework which strengthens the presence of independent non-executive directors. The empirical evidence suggests that under the new IAS/IFRS reporting philosophy, proprietary costs may have lost relevance due to the introduction of mandatory segment information requirements. In addition, within an institutional context of high ownership concentration independent directors play a significant role in raising the level of reported information. The context of the new IFRS 8 offers new opportunities to observe how governance and proprietary costs affect the new “management approach” for segment reporting classification.
Keywords: segment reporting, agency theory, proprietary costs, independent directors.
JEL Classification: G30, C12, C23, M40, M41
Suggested Citation: Suggested Citation