Portfolio Aspects of Segment Identification

Abstract

Despite the enactment of accounting standards on segmental reporting around the globe, the question of segment identification still remains unresolved. The current debate between the FASB and IASC on whether a managerial or risk-return approach is most beneficial to users underscores the importance of the issue. In this paper a measure of firm diversification is developed which provides a clear and unambiguous measure of the potential incremental information content of segmental data over consolidated disclosure. The analysis shows how this measure can be utilised to guide decisions as to the most appropriate and informative categorisation of operational units into reportable segments for external users.

JEL Classification: M41, M45