Product Market Competition and Firms’ Disclosure of Cross-Segment Differences in Performance

ABACUS

37 Pages Posted: 9 Jun 2020 Last revised: 10 Sep 2020

See all articles by Roland Königsgruber

Roland Königsgruber

Université Côte d'Azur

Pietro Perotti

University of Bath - School of Management

Oliver Schinnerl

University of Graz

Fanis Tsoligkas

University of Bath - School of Management

David Windisch

University of Amsterdam

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

Königsgruber, Roland and Perotti, Pietro and Schinnerl, Oliver and Tsoligkas, Fanis and Windisch, David, Product Market Competition and Firms’ Disclosure of Cross-Segment Differences in Performance (May 14, 2020). ABACUS, Available at SSRN: https://ssrn.com/abstract=3600763 or http://dx.doi.org/10.2139/ssrn.3600763

Roland Königsgruber

Université Côte d'Azur ( email )

France

Pietro Perotti

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

HOME PAGE: http://researchportal.bath.ac.uk/en/persons/pietro-perotti

Oliver Schinnerl

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Fanis Tsoligkas (Contact Author)

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

David Windisch

University of Amsterdam ( email )

Amsterdam Business School
Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

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