Does Location Matter for Disclosure? Evidence from Geographical Segments

• In Event: Disclosure Quality

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 hand-collected 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

• Arnt Verriest, EDHEC Business School

• Edith Leung, Erasmus University Rotterdam