Publication Type

Journal Article

Version

acceptedVersion

Publication Date

9-2015

Abstract

Using the adoption of SFAS 131, I examine the effect of segment disclosure transparency on internal capital market efficiency. SFAS 131 requires firms to define segments as internally viewed by managers, thereby improving the transparency of managerial actions in internal capital allocation. I find that diversified firms that improved segment disclosure transparency by changing segment definitions upon adoption of SFAS 131 experienced an improvement in capital allocation efficiency in internal capital markets after the adoption of SFAS 131. In addition, I find that the improvement in internal capital market efficiency was greater for firms that suffered more severe agency problems before the adoption of SFAS 131 and also for firms whose managers faced stronger incentives to improve efficiency after the adoption of SFAS 131. My results suggest that more transparent segment information can help resolve agency conflicts in the internal capital markets of diversified firms, thus improving investment efficiency.

Keywords

SFAS 131, Segment Disclosures, Transparency, Agency Costs, Internal Capital Markets

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Accounting Research

Volume

53

Issue

4

First Page

669

Last Page

723

ISSN

0021-8456

Identifier

10.1111/1475-679X.12089

Publisher

Wiley: 24 months - No Online Open

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/1475-679X.12089

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