The Tradeoff between Relevance and Comparability in Segment Reporting

Journal of Accounting Literature, Forthcoming

42 Pages Posted: 30 Jul 2018 Last revised: 1 Mar 2021

See all articles by Lisa A. Hinson

Lisa A. Hinson

University of Florida - Warrington College of Business Administration

Jenny Wu Tucker

University of Florida - Warrington College of Business

Diana Weng

Baruch College-CUNY

Date Written: November 6, 2019

Abstract

The rule change for segment reporting in 1998 has arguably made segment reporting more relevant through the adoption of the management approach. Meanwhile, the management approach has resulted in a decrease in the comparability of segment income. We introduce firm-specific measures of changes in relevance and comparability due to the rule change. Our treatment firms experienced an increase in the relevance of segment reporting but a large decrease in the comparability of segment income; our benchmark firms barely experienced any changes in relevance and comparability. We examine earnings forecasts before vs. after the rule change issued by financial analysts—a major user group of segment reporting. Relative to benchmark firms, treatment firms’ analyst forecast error reductions around the segment disclosure event are not significantly different after the rule change than before the rule change, but treatment firms’ forecast dispersion reductions around the segment disclosure event are significantly larger after the rule change than before the rule change. These results suggest that despite the decrease in comparability, the new segment reporting rule has increased the decision usefulness of segment information by decreasing disagreement among analysts.

Keywords: segment reporting, relevance, comparability, analysts

Suggested Citation

Hinson, Lisa A. and Tucker, Jenny Wu and Weng, Diana, The Tradeoff between Relevance and Comparability in Segment Reporting (November 6, 2019). Journal of Accounting Literature, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3221879 or http://dx.doi.org/10.2139/ssrn.3221879

Lisa A. Hinson

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Jenny Wu Tucker

University of Florida - Warrington College of Business ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

Diana Weng (Contact Author)

Baruch College-CUNY ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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