A Study of Line-Of-Business Disclosures: Accounting Versus Market Risk Measures.

Abstract

This study explores the information content of Financial Accounting St and ards Board Statement No. 14 (FAS No. 14), an accounting pronouncement that requires a multisegment firm to disclose certain financial information on its various operating segments as a supplement to the consolidated accounting statements. In other words, multisegment firms must disclose information at two levels of aggregation/consolidation. This study examines the information content of each level individually and of the FAS No. 14 ("before consolidation") disclosures viewed as incremental information beyond the traditionally reported ("after consolidation") information. In order to compare the information content of these two levels of aggregation, risk measures ("betas") are calculated from each information set and are compared to a non-accounting-based risk measure, the security market beta. Statistically significant cross-sectional correlations are reported between these three types of risk measures. These simple correlations imply that each of these information sets reflect information about the risk of the firm as impounded in security market prices. The question of whether the FAS No. 14 disclosures provide information beyond that contained in the consolidated reports is addressed using a two-stage regression approach. The results of this analysis provide evidence of the incremental information content of the disaggregated FAS No. 14 disclosures.