The economic consequences of disclosure quality under SFAS No. 131

Tsung-Kang Chen, Yi Ping Liao*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

We investigate the economic consequences of SFAS No. 131 by evaluating whether improved segment-disclosure quality is associated with the reduction of cost of debt (as measured by bond yield spread). Based on firms’ compliance with the disclosure guidance by SFAS No. 131, we construct a score that measures segment-reporting quality. The results indicate that: (1) the level of a firm’s compliance with SFAS No. 131 significantly and negatively relates to bond yield spreads, and (2) the time-series variation in the level of a firm’s compliance with SFAS No. 131 associates significantly and positively with bond yield spreads. More specifically, the yield spreads decrease 17.065 bps per standard deviation increase in segment-reporting quality. Overall, our findings offer direct motivation for management to commit to high-quality segment reporting.

Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalAccounting Horizons
Volume29
Issue number1
DOIs
StatePublished - 1 Mar 2015

Keywords

  • Bondyield spreads
  • Cost of debt
  • Disclosure quality
  • SFAS No. 131
  • Segment reporting

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