Associate Professor of Accounting and Control
Daniel A. Bens
Professor of Accounting and Control
IAF 10/11; IAF 2520345; Corporate Governance; Auditing, Risk Control and Performance ;
The authors use confidential, U.S. Census Bureau, plant-level data to investigate aggregation in external reporting. We compare firms' plant-level data to their published segment reports by grouping a firm’s plants that share the same four-digit SIC code into a "pseudo-segment."The authors then determine whether each pseudo-segment is disclosed as an external segment, or whether it is subsumed into a different business unit for external reporting purposes.The authors show that a pseudo-segment is more likely to be aggregated when the agency and proprietary costs of separately reporting the pseudo-segment are higher and when firm and pseudo-segment characteristics allow for more discretion in the application of segment reporting rules. For firms reporting multiple external segments, aggregation of pseudo-segments is driven by both agency and proprietary costs. For firms reporting a single external segment, the authors find no evidence of an agency cost motive for aggregation.