We explore the relation between corporate diversification and CEO compensation. We document that geographic diversification provides a compensation premium, while industrial diversification is associated with lower levels of CEO pay. We also examine the effect of corporate diversification on the structure and performance criteria of CEO compensation contracts. We find that both diversification strategies are associated with a greater use of incentive-based compensation and with a greater reliance on market-based, rather than accounting-based measures of firm performance. Finally, we address the question of whether shareholders reward CEOs for corporate diversification. We document that while value-enhancing geographic diversification is rewarded, non-value-enhancing industrial diversification is penalized.

Geographic and Industrial Corporate Diversification: The Level and Structure of Executive Compensation

Users alleged that, under SFAS No. 14, many large and complex firms 'under-reported' their segments. A primary reason offered to justify this behavior was managers' desire to avoid competitive harm that supposedly would arise from disclosing sensitive segment profits to competitors, customers and suppliers. One intended consequence of SFAS No. 131 was that many firms would be required to increase the numbers of their reported segments. This paper examines the effect that adopting SFAS No. 131 had on the numbers of business segments reported by a sample of 3,735 firms. If the new standard is successful in achieving the FASB's stated goals, changes in numbers of segments should be positively associated with firm size and complexity of operations. Changes also should be positively associated with proxies for under-reporting of segments under SFAS No. 14. Alternatively, if some firms continue to under-report, changes in segments should be negatively associated with proxies for competitive harm. We find that prior under-reporting is associated with increased numbers of segments upon adoption of SFAS No. 131. Firms subject to imperfect competition, measured by an industry concentration ratio, had smaller increases in segment numbers. This evidence suggests that SFAS No. 131 has been a mixed success in achieving one of the FASB's stated goals for segment reporting.

https://papers.ssrn.com/sol3/Delivery.cfm/000205217.pdf?abstractid=208549&mirid=1

The Effect of SFAS No. 131 on Numbers of Reported Business Segments

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. TABLE OF CONTENTS (continued) CHAPTER PAGE Backer and McFarland (1968) ........... 46 Stallman (1969) ......................... 48 Kinney (1971) ............................ 53 Kochanek (1974) ......................... 57 Collins (1976)............................ 61 Horwitz and Kolodny (1977).............. 62 S u m m a r y ..................................... 65 III. RESEARCH OBJECTIVE AND METHODOLOGY......... 70 Hypotheses and Test Method o l o g y......... 75 Discussion and Test Methodology Hypothesis u ......................... 76 Discussion and Test Methodology Hypothesis H 2 ......................... 79 Discussion and Test Methodology Hypothesis H _ .......................... 80 Discussion and Test Methodology Hypothesis H , ......................... 82 Discussion and Test Methodology Hypothesis H ......................... 83 Sample Subjects ......................... 84 Sample Plan and R e s p o n s e s .............. 85 Survey I n s t r u m e n t ....................... 90 Research Variables.......................... 93 Independent Variables .................. 93 Levels of Segment Disclosure......... 93 Earnings Variability.................. 94 Dependent Variables ..................... 95 CFAs' Average Prediction of Corporate Earnings.................. 102 Communicative Ability of the Disclosure Among C F A s .............. 102 Confidence CFAs Place in Their Predi c t i o n s ....................... . 102 S u m m a r y ..................................... 103 IV. STATISTICAL ANALYSIS AND DISCUSSION OF R E S U L T S ..................................... 104 Statistical Test of Significance Used . . 104 Test of Hypotheses......................... 107 Hypothesis 1 Analysis and Interpretation......................... 107

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An empirical study of usefulness and communicative ability of segment disclosures among sophisticated users of corporate financial statements

The conclusions presented herein are those of the author and have not been adopted by the Federal Trade Commission or any entity within the Commission. The Federal Trade Commission’s Disclosure Advoidance Officer has certified that the data included in this paper do not identify an individual company line of business data. The author gratefully acknowledges the useful comments and support of Joshua Ronen, John Bildersee, and Joel Owen of New York University. The author also expresses appreciation to William Long and David Lean of the Federal Trade Commission for providing the resources to help conduct this research. Finally, the author is indebted to an anonymous reviewer for his or her invaluable comments. Any remaining errors are the responsibility of the author. This paper deals with the interrelationship between cost allocation and segment reporting. Cost allocation is a fundamental issue in accounting and one which is little understood. Segment reporting, although not as problematic, is still an issue for accountants due to the questioned reliability of segment information. The Financial Accounting Standards Board (FASB) addressed the segment reporting issue in 1976 when it issued Statement No. 14, “Financial Reporting for Segments of a Business Enterprise” [l]. This Standard requires the footnote disclosure of revenues, operating profit and other financial data by line of business. The disclosure is only required for those industry segments meeting certain materiality criteria. ’ Statement No. 14 did not end all of the controversy surrounding the segment reporting issue. In particular, this Statement allows a great deal of managerial flexibility in many segment reporting decisions, such as cost

Segment reporting : the cost allocation issue

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Richard Leslie. G_odall

Papers

Financial reporting for segments of business enterprises.