Articlegreen2003

Heterogeneous Investment Opportunities in Multiple-Segment Firms and the Incremental Value Relevance of Segment Accounting Data

80 citations0/0 files storedThe Accounting Review

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Financial Reporting and Valuation Research Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting

Abstract

Applying a real-options-based valuation approach, we develop and test a model that addresses the incremental value relevance of segment data beyond firmlevel accounting data. Prior studies (e.g., Zhang 2000; Biddle et al. 2001) show that equity valuation requires accounting data (in part) because accounting provides signals that guide capital investments underlying value creation. In this study, we establish that the usefulness of segment data beyond aggregate data relates to heterogeneity of investment opportunities across segments, caused by divergences of segment profitability and growth potential. Empirical results are consistent with the model's predictions. We also assess the magnitude of the valuation impact of segment information relative to that of firm-level information.

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References

1977Determinants of corporate borrowing 1995Earnings, Book Values, and Dividends in Equity Valuation*1992The investment opportunity set and corporate financing, dividend, and compensation policies 1995Diversification's effect on firm value 1995The information content of losses 1995Valuation and Clean Surplus Accounting for Operating and Financial Activities*2008Financial Accounting Standards Board (FASB)1998Relative valuation roles of equity book value and net income as a function of financial health

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2011Strategic revelation of differences in segment earnings growth 2008Earnings and Equity Valuation in the Biotech Industry: Theory and Evidence 2003Segment Disclosures, Proprietary Costs, and the Market for Corporate Control 2007Segment Profitability, Misvaluation, and Corporate Divestment 2014The relation between segment disclosure and earnings quality 2012Managers Segment Financial Reporting Choice: An Analysis Of Firms Segment Reconciliations

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