Knowledge that Transforms

Reporting lags, Squared market model prediction errors, Information content, SEC Filings

Auditing, Audit Fees, Audit-pricing, Legal liability

Inventory valuation, Accounting methods, LIFO adoption, Uncertainty

Our purpose is to investigate the use of geographical segment disclosures. Specifically, we examine whether equity valuations of U.S. multinationals are affected by geographical segment disclosures mandated by Statement of Financial Accounting Standards No. 14: Financial Reporting for Segments of a Business Enterprise (henceforth SFAS 14). Our results suggest that, when unexpected segmental earnings are large, geographical segment disclosures are used. For the most part, however, we find little evidence that these disclosures affect equity values. This research is motivated by the allegation that geographical segment disclosures are essentially useless. SFAS 14 (paragraph 34) allows considerable discretion in defining reportable segments and firms employ coarse definitions, possibly because of an innate fear of disclosure (Wechsler and Wandycz [1990]) or desire to finesse dumping and international transfer-pricing questions (Balakrishnan, Harris, and Sen [1990]). It is not difficult to find anecdotal evidence of coarse segmental definitions. Caterpillar Industries had reported three geographical segments: U.S., Europe, and Other. In June 1990, the company told analysts that Brazilian operations had entered a deep slump. The stock market reaction to this announcement was minimal. A few days later, however, the company informed analysts that this slump would cause second-quarter profits to be less than half the amount reported for the

Disclosures, Disclosure quality, FAF ratings, Returns

Peter D. Easton, Peter H. Eddey, Trevor S. Harris, An Investigation of Revaluations of Tangible Long-Lived Assets, Journal of Accounting Research, Vol. 31, Studies on International Accounting (1993), pp. 1-38

Budgeting, Participative budgets, Budgetary participation, Coordination role

Disclosures, Disclosure informativeness, Disclosure policy, Users of disclosures

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This paper considers tests for parameter instability and structural change with unknown change point. The results apply to a wide class of parametric models that are suitable for estimation by generalized method of moments procedures. The asymptotic distributions of the test statistics considered here are nonstandard because the change point parameter only appears under the alternative hypothesis and not under the null. The tests considered here are shown to have nontrivial asymptotic local power against all alternatives for which the parameters are nonconstant. The tests are found to perform quite well in a Monte Carlo experiment reported elsewhere. Copyright 1993 by The Econometric Society.