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Information content and economic consequences of interim segment reporting: An empirical test
Abstract
The Securities Exchange Commission proposed, but has not adopted a regulation to require the listed companies to disclose segment information in Form 10-Q filings to enhance the usefulness of Management's Discussion and Analysis. The objective of this dissertation is to examine interim segment reportings' market consequences that may be useful to the accounting profession in understanding the issues relevant to that reporting practice. Previous research indicates that interim segment information has predictive value with respect to subsequent interim and annual earnings of an entity. In a multi-period setting, an earnings announcement functions as a source of both predictive and confirmatory information. Therefore, an increase in market reactions around earnings announcements caused by predictive value may be totally offset by a decrease associated with confirmatory information. However, this ongoing shift can be observable if the magnitude of increase in market reactions associated with the first use of interim segment information is more than that associated with predictive value of each subsequent earnings announcement. This dissertation compares market reactions measured by standard deviation of the market model residual around earnings announcements for consecutive four paired quarters distinguished by disclosure of interim segment information. Reduction in market reactions is observed only around the second quarter earnings announcement; thus, it provides partial evidence of the ongoing shift. This ongoing shift can be fully supported if the corresponding increase in market reactions is detected at some point early in the transition period. Because interim segment information represents a finer set of information, its economic consequence is examined in terms of changes in firms' costs of capital, as measured by their respective Beta values. Although disclosure of interim segment information is associated with changes in Beta values of reporting firms, no statistical conclusion can be made as to the direction of change in their respective costs of capital.
Subject Area
Accounting
Recommended Citation
Lee, Daisun, "Information content and economic consequences of interim segment reporting: An empirical test" (1987). ETD collection for University of Nebraska-Lincoln. AAI8810321.
https://digitalcommons.unl.edu/dissertations/AAI8810321