THE IMPACT OF SEGMENT REPORTING ON ANALYSTS' EARNINGS FORECASTS: THE CASE OF FASB STATEMENT NO. 14

• Main Author: SAYERS, DAVID L
• Format: Dissertation
• Language: English
• Published: ProQuest Dissertations & Theses 01.01.1985
• Subjects: Accounting; Annual reports; Disclosure; Earnings forecasting; FASB statements; Financial accounting standards; Financial reporting; Forecasting techniques; Impact analysis; Profits; Studies
• ISBN: 9798204863859

In 1969 and 1970, the Securities and Exchange Commission adopted rules mandating the disclosure of segment revenues and profits. Empirical tests of the usefulness of segment data have yielded mixed results. Capital market studies of segment disclosures have been inconclusive. Earnings forecast studies seem to be the most promising means of examining the usefulness of segment data. In 1976, the Financial Accounting Standards Board issued Statement No. 14 which required extensive segment disclosures in the annual reports of publicly-owned companies. This study examines the impact of FASB 14 segment disclosures on security analysts' earnings forecasts. The earnings forecasts used in this study are the composite forecasts published by the Institutional Brokers Estimate Service (IBES). Actual earnings figures were taken from IBES and from the annual reports of sample firms. A measure of forecast accuracy was computed for two groups of firms for the period 1976-1979. The multisegment treatment group consisted of firms that disclosed segment revenues and profits for the first time after FASB 14 became effective. The single-segment control group consisted of firms that reported only consolidated earnings for the entire test period. Regression analysis was used to analyze changes in forecast accuracy during the test period. The independent variables were "reporting method" and "economic conditions." After controlling for multicollinearity between the independent variables, the results supported the hypothesis that earnings forecasts did improve for the multisegment group after FASB 14 became effective; however, earnings forecasts did not improve for the single-segment control group. The primary conclusion is that there was a significant association between improved earnings forecasts and the disclosure of FASB 14 segment data. Because forecasts did not improve for the control group, this association cannot be attributed only to overall improvements in forecasting techniques.