Product Market Competition and Firms’ Disclosure of Cross-Segment Differences in Performance
ABACUS
37 Pages Posted: 9 Jun 2020 Last revised: 10 Sep 2020
Date Written: May 14, 2020
Abstract
This study examines how product market competition affects firms’ disclosures of their individual segments’ performance. We explicitly account for different types of product market competition by distinguishing between competitors who are already active in a particular market and potential competitors who are considering entering the market. Arguably, firms that are subject to intensive existing competition have lower incentives to conceal information because they are less likely to exhibit abnormal profitability. By contrast, a high level of potential competition constitutes a threat to profitability and hence provides incentives to conceal segment performance. In line with these proprietary cost arguments, we find that potential competition is negatively associated with the disclosure of cross-segment differences in performance, whereas existing competition is positively associated with the disclosure of cross-segment differences in performance. Our results remain robust to a number of sensitivity tests.
Keywords: Product Market Competition, Existing Competition, Potential Competition, Segment Reporting, Cross-Segment Differences
JEL Classification: M41
Suggested Citation: Suggested Citation