Does Location Matter for Disclosure? Evidence from Geographical Segments

• In Event: Segment and Other Disclosures

Abstract

This paper uses a novel approach to examine motives for geographic segment
disclosure. It is generally assumed that firms prefer not to disclose disaggregated segment
information for proprietary reasons, although there is mixed support for this assertion in
empirical work. We develop an approach that uses the location characteristics of geographic
segments to empirically identify reasons for withholding or disclosing segments. Using handcollected segment data around a switch in reporting standards that forced firms to reveal more disaggregated segment information, we find that proprietary costs are the main determinant
of geographic segment disclosure. We find that segments in wealthier areas and ranked better
for business tend to be hidden, while higher entry barriers to a segment’s location are
positively related to the likelihood of a segment being disclosed. We also find that among
previously unrevealed segments, proprietary costs also explain the non-disclosure of segment
earnings and other information. In contrast, the attractiveness of a segment and entry barriers
do not explain the amount of disclosed information for segments that were already disclosed prior to the switch in reporting standards. The findings suggest that proprietary, rather than agency costs, are a more important determinant of geographic segment disclosure.

Authors

• Edith Leung, Erasmus University Rotterdam

• Arnt Verriest, EDHEC Business School