Change in value relevance of quarterly foreign sales data of U.S. multinational corporations after adopting SFAS 131

Abstract

Segment disclosure, SFAS 131, Quarterly disclosure, Value relevance, Geographic segment, F23, G14, M41,

Is the firm's business model related to segment reporting?

“…A number of authors now question the quality of the financial information communicated through SFAS 131: "Managers have strong incentives to manipulate internal segment information used in performance evaluation" (Berger and Hann, 2003). Indeed, most North American studies of SFAS 131 have shown that the more firms communicate in terms of geographic segments, the greater the tendency to communicate results, notably abroad (Hope et al, 2009;Hossain, 2008). Some authors have also provided evidence that, even if IFRS 8 does not require provision of two levels of segment disclosures, in many instances the second-level disclosures (especially geographic disclosure) are finer and accordingly more useful for decision making (Nichols et al, 2012).…”

Earnings Benchmarks and the Information Content of Quarterly Foreign Earnings of U.S. Multinational Companies

“…Hossain and Marks () report similar results using quarterly information for U.S. multinational companies that voluntarily disclosed quarterly foreign and domestic sales prior to the implementation of SFAS 131. Hossain () observes a higher market reaction to the change in quarterly foreign sales after SFAS 131 relative to before SFAS 131. Lacina et al.…”

“…In this set of sensitivity tests, we include some additional variables that have been found to be related to abnormal returns around quarterly earnings announcements. Hossain and Marks () and Hossain () find that the abnormal returns around quarterly earnings announcements are related to the quarterly changes in domestic and foreign sales, with the financial market reacting more strongly to the change in foreign sales. However, Lacina et al.…”

“… Christophe (), Christophe and Pfeiffer (), Hossain and Marks (), Hossain (), and Lacina et al. () investigate only firms with December 31 fiscal year ends. …”

“…Lacina et al (2009) assume that the change in quarterly domestic earnings and the change in quarterly foreign earnings follow a seasonal random walk. Hossain and Marks (2005), Hossain (2008), and Lacina et al (2009) assume that the change in quarterly domestic sales and the change in quarterly foreign sales follow a seasonal random walk. 9.…”