This paper investigates the relation between levels of industry competition and managers' choices of which operations to report as business segments. One reason managers have objected to segment disclosures is that these disclosures allegedly provide commercially valuable information to competitors that is not available elsewhere. This objection might seem to imply that managers are most reluctant to provide segment disclosures for operations in highly competitive industries; however, if abnormally high earnings tend to occur in less competitive industries, managers' segment reporting discretion may be exercised to avoid reporting these operations as business segments. Using a sample of 929 firms reporting business segments in their annual reports during 1987 to 1991, I estimate a logit model of management's decision to report operations in a given industry as a segment as a function of two measures of industry competition: the four-firm concentration ratio and a measure of the speed of profit adjustment. The

Using both a market-based and an accrual-based measure of conservatism, we find that firms facing more severe conflicts over dividend policy tend to use more conservative accounting. Furthermore, we document that accounting conservatism is associated with a lower cost of debt after controlling for other determinants of firms' debt costs. Our collective evidence is consistent with the notion that accounting conservatism plays an important role in mitigating bondholder-shareholder conflicts over dividend policy, and in reducing firms' debt costs.