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Segment Reporting under IFRS 8

Reporting practice and economic consequences

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Martin Nienhaus

The adoption of IFRS 8 marked a major change in the segment reporting rules under IFRS. This step, however, was heavily criticized and several questions regarding IFRS 8 still remain unanswered. Therefore, this study analyzes the impact of IFRS 8 on segment reporting practice and its economic consequences. The results show that firms report on average more segment information. Moreover, segment reports from the management’s perspective are useful and mitigate information asymmetries, reduce the cost of capital and affect the work of financial analysts. The findings have implications for the IASB, preparers, auditors and users of financial statements as well as enforcement institutions.
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6. Analysis of economic consequences

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6Analysis of economic consequences

6.1Methodological approach

This section presents the methodological approach used to gauge the capital market effects of IFRS 8’s adoption. The analysis comprises three sub-analyses from the perspectives of investors, companies and financial analysts. After some preliminary considerations, the general research design as well as the main variables for each of the sub-analyses are introduced.

6.1.1Preliminary considerations

Making causal claims about the impact of financial disclosures, in particular the adoption of a new accounting standard, on capital markets is very challenging. In general, researchers face three problems.

First, it is difficult to rule out any confounding time effects that may impact the measures used to gauge capital market implications. Usually, accounting standards come into effect for all firms in a jurisdiction at the same point in time. Any changes that happen concurrently, either accounting-related or general economic developments, may also impact the measures used to capture capital market effects. Hence, it is generally impossible to solely attribute potential reactions by the capital market to the adoption of the accounting standard itself.

Second and in a similar vein, it is difficult to narrow down the channel of financial disclosures that actually causes the capital market effects. This is particularly the case when discretion or voluntary disclosure decisions are involved. For instance, a company that decides to be more transparent and forthcoming in their segment report can simultaneously improve several other disclosures as part of a general...

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