Motivations for Changes in Disclosure Frequency and Its Consequences: An Examination of Voluntary Quarterly Segment Disclosures

We examine the determinants and effects of managers' decisions to increase segment disclosure frequency. Our sample consists of 107 multi-segment firms reporting industry segment data in their annual reports between 1987 and 1994. Of these 65 "change" firms initiated quarterly segment disclosures during the study period, while 42 "non-disclosing" firms provided no segment data in their interim reports at any time during this period. We find that during the two-year period leading up to the change, change firms experienced a decline in liquidity (measured by trading volume) and an increase in information asymmetry (measured by analyst forecast consensus). In addition, change firms were more likely to have made acquisitions and to have operations in industries in which other firms also provide quarterly segment disclosure. However, we find no significant differences between change and non-disclosing firms with respect to shifts in their competitive environments or analyst following in the pre-disclosure period or their propensity to access capital markets following the change. Following the onset of quarterly segment reporting, change firms experienced an increased analyst following. This paper contributes to the disclosure literature in several respects. First, by examining firm attributes previously associated with cross-sectional differences in disclosure levels, as possible explanations for differences in disclosure frequency and second by examining whether changes in these firm characteristics are associated with the decision to increase segment disclosure frequency.