Segment reporting!
Posted: 11 September 2013 04:31 PM   [ Ignore ]
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I have a naive question…

In US how has segment reporting rules evolved? Are segment reporting mandatory? One facts one can find in Compustat’s segment data is that not all Compustat firms report segment information. Why? Can we assume that firms without segment information are single segment firms? Similarly, there is cases that firms report geographic segment data but not business segment data? Can we assume that firms in this situation has single business segment?

Thanks!!!

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Posted: 12 September 2013 04:52 PM   [ Ignore ]   [ # 1 ]
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hi,

These are not naive questions at all smile

Compustat Fundamental Annual and Compustat Segment files are both maintained/sold by S&P, so you would indeed expect some consistency between the two datasets. Many firms that report a single segment are included in the segment files, so that makes you wonder why some firms are not included.

Two workable ways to deal with it:
- assume firms that are missing in segments are single-segment
- drop firms with missing segment info

I had recently looked into some properties of firms that are in Funda, but not in the segment files. The probability of not being included is highest for newly listed firms; about 15% of newly listed firms are not in segment files. Older firms (30+ years) are pretty much 100% in segment files. At the same time, younger firms are more likely to be single-segment firms than older firms. So, it is pretty reasonable (but not 100% correct) to assume firms that are not in segment files to be single-segment.

Dropping these firms could be clean as well. Either way there is a bias. So if you do both ways and results are consistent you are probably ok.

I believe that under SFAS 131 (effective Dec 15, 1997) firms have the discretion to report segments as either by GEO or by industry segment (or both), depending how they have actually organized operations. So, if firms have GEO business units they would report GEO segments only (not 100% sure here).

Hope this helps,

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