What prompts firms to choose between business and geographic segments as a primary segment?

• Published in: Managerial auditing journal Vol. 25; no. 1; pp. 17 - 31
• Main Authors: Talha, Mohammad, Sallehhuddin Abdullah Salim, Abdullah
• Format: Journal Article
• Language: English
• Published: Bradford Emerald Group Publishing Limited 01.01.2010
• Subjects: Accounting; Accounting standards; Boards of directors; Competition; Compliance; Disclosure; Exposure drafts; Financial leverage; Financial reporting; Hypotheses; Information disclosure; Investigations; Lines of business reporting; Location of industry; Malaysia; Rates of return; Statistical analysis; Studies; Malaysia; Information disclosure; Accounting standards; Malaysia
• ISSN: 0268-6902; 1758-7735
• DOI: 10.1108/02686901011007289

Purpose - The purpose of this paper is to investigate what causes a firm to choose between a business segment and a geographic segment as a primary segment for its segmental information disclosure. It seeks to examine Malaysian firms' experiences as they disclose segmental information under the new accounting standard known as FRS 114, Segment Reporting.Design methodology approach - The paper involves 374 Malaysian public-listed companies which disclosed segmental information in their 2006 annual reports. Four hypotheses are developed to examine the influence of these five factors, namely the size of the company, listing status, financial leverage, financial performance, and industrial membership. The non-parametric test is employed to test the formulated hypotheses.Findings - The results reveal two important outcomes: first, size of company, financial performance, and industrial membership are significantly associated with the choice of a primary segment; and financial leverage of a company and listing status are not significantly associated with the choice of a primary segment.Research limitations implications - The limited number in the sample and inherent segmental reporting problems present limitations.Practical implications - The paper implies extensive auditing work as the new standard requires more extensive disclosure for the primary segment, although the standard allows the adoption of primary segment reporting at management's discretion.Originality value - The paper's value lies in determining what motivates a company to disclose a business segment or a geographic segment as its primary segmental reporting basis.