Systematic Risk and the Discretionary Disclosure of Geographical Segments: an Empirical Investigation of Us Multinationals

Product market diversification within the UK as well as transnational and conglomerate mergers of recent years across the world have resulted in increasingly less meaningful financial reports to the users giving rise to the need for unbundling or segment reporting. An examination is made of the effect of geographical segments disclosure on the systematic risk of a group of US multinationals quoted on the New York Stock Exchange during the period 1968-1984. The hypotheses require an analysis of betas over time to evaluate changes in the model. The results support the hypothesis that postdisclosure treatment group betas are likely to be smaller than predisclosure treatment group betas. Disclosure diminishes uncertainty and can result in lower cost of capital to the disclosing group of firms, when compared with the nondisclosing group. Geographical segments disclosure, similar to line-of-business disclosure, appears to have information content that affects market risk assessments.