Segment Reporting to the Capital Market in the Presence of a Competitor

JOURNAL OF ACCOUNTING RESEARCH, Vol 34, No 2, Autumn 1996

Posted: 4 May 1998

See all articles by Rachel M. Hayes

Rachel M. Hayes

University of Utah - David Eccles School of Business

Russell J. Lundholm

University of British Columbia - Sauder School of Business

Abstract

In this paper we model a firm's choice of how finely to report its segmental performance, given that its disclosures will be observed by both a rival firm and the capital market. We find that when competition with the rival is sufficiently severe, the firm's value is highest when its privately-observed signals are sufficiently similar and it discloses these signals as separate segments. In this case the capital market becomes better informed yet the rival firm learns very little about where to allocate its capital. Consequently, in equilibrium, only firms with sufficiently similar results from their different activities will choose to report them as separate segments; firms with disparate results will aggregate them together into a single reported segment.

JEL Classification: M41, M43

Suggested Citation

Hayes, Rachel M. and Lundholm, Russell J., Segment Reporting to the Capital Market in the Presence of a Competitor. JOURNAL OF ACCOUNTING RESEARCH, Vol 34, No 2, Autumn 1996. Available at SSRN: https://ssrn.com/abstract=2704

Rachel M. Hayes (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Russell J. Lundholm

University of British Columbia - Sauder School of Business ( email )

2053 Main Hall
Vancouver, British Columbia V6T 1Z2
Canada

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