Nowhere to hide: Response of corporate restructuring activities to mandatory segment disclosure

Key researchers

• Trinh Le
• B Oliver
• KJK Tan

Description

We examine the effect of mandatory financial disclosures, specifically SFAS 131, on corporate restructuring activities using difference-in-differences (DiD) and regression discontinuity design (RDD) settings. After adopting SFAS 131, firms are less likely to engage in acquisitions than control firms. Furthermore, conditional on firms' engagement in acquisition activities, acquirers are less likely to complete their initiated acquisition deals, especially for those value-destroying deals. After implementing SFAS 131, we find that the equity market reacts positively to large and diversifying deals subject to mandatory segment disclosures. Our results suggest that the segment disclosure standard helped prevent managers from undertaking new, value-destroying M&As post-SFAS 131. Finally, these SFAS 131–induced corporate restructuring activities help reduce the risk of a stock price crash.