The Impact of SFAS No. 131 on Information and Monitoring

The Impact of SFAS No. 131 on Information and Monitoring We investigate the effect of the Financial Accounting Standards Board's (FASB) new segment reporting standard on the information and monitoring environment. We compare hand‐collected, restated SFAS 131 segment data for the final SFAS 14 fiscal year with the historical SFAS 14 data. We find that SFAS 131 increased the number of reported segments and provided more disaggregated information. Analysts and the market had access to a portion of the new segment information before it was made public, but analyst and market expectations were still altered by the mandated release of the new data. By increasing information disaggregation, the new standard induced firms to reveal previously “hidden” information about their diversification strategies. The newly revealed information affected market valuations and lead to changes in firm behavior consistent with improved monitoring following adoption of SFAS 131. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

The Impact of SFAS No. 131 on Information and Monitoring

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Publisher
Wiley
Copyright
Copyright © 2003 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0021-8456
eISSN
1475-679X
D.O.I.
10.1111/1475-679X.00100
Publisher site
See Article on Publisher Site

Abstract

We investigate the effect of the Financial Accounting Standards Board's (FASB) new segment reporting standard on the information and monitoring environment. We compare hand‐collected, restated SFAS 131 segment data for the final SFAS 14 fiscal year with the historical SFAS 14 data. We find that SFAS 131 increased the number of reported segments and provided more disaggregated information. Analysts and the market had access to a portion of the new segment information before it was made public, but analyst and market expectations were still altered by the mandated release of the new data. By increasing information disaggregation, the new standard induced firms to reveal previously “hidden” information about their diversification strategies. The newly revealed information affected market valuations and lead to changes in firm behavior consistent with improved monitoring following adoption of SFAS 131.

Journal

Journal of Accounting ResearchWiley

Published: May 1, 2003

References

  • Detecting Long‐Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics
    Barber, Barber; Lyon, Lyon
  • Diversification's Effect on Firm Value
    Berger, Berger; Ofek, Ofek
  • Cross‐Subsidies, External Financing Constraints, and the Contribution of the Internal Capital Market to Firm Value
    Billett, Billett; Mauer, Mauer
  • The Superiority of Analyst Forecasts as Measures of Expectations: Evidence from Earnings
    Brown, Brown; Rozeff, Rozeff
  • Optimal Release of Information by Firms
    Diamond, Diamond
  • Measurement Errors and Information Content of Segment Reporting
    Givoly, Givoly; Hayn, Hayn; D'Souza, D'Souza

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