Mind the Gap: Do country-level characteristics really matter to segmental reporting?

Posted by Akrum Helfaya - Jan 26, 2022

A blog by Dr.  Akrum Helfaya, Keele University Business School, and Dr. Ahmed Aboud, University of Portsmouth Business School


The principal objective of a country’s economy is to maximize the economic and social welfare of its people through an efficient allocation of limited resources (Baldini et al., 2016). In emerging economies, for instance, chartered by insufficient resources, capital is the scarcest and most important productive source. Meanwhile, shareholders and investors aim to maximize their own economic returns, they require high-quality information to make sound investment decisions and to allocate their resources in an efficient way (Aboud & Roberts, 2018; Wang, 2016). In the absence of such high-quality information, business owners, investors, creditors, and other capital markets' participants are likely to make investment decisions that lead to an inefficient allocation of resources in the economy. A remarkable feature of modern global business has been the growth of diversified business companies that carry on activities in two or more lines of business or geographical locations (see, Aboud & Roberts, 2018; Aboud et al., 2018). This prevalent movement towards diversification has led to a need for information about the various segments of a company in addition to the consolidated financial statements about its overall financial performance. Subsequently, an extensive body of segmental reporting (SR) standards (e.g., SSAP 25, SFAS 14 & 131, IAS 14 & 14R, and IFRS 8) has emerged demanding greater quantity and quality in companies’ segmental reporting (see, Akamah et al., 2018).  

Consequently, the quality of corporate performance information of its business’s activities in different geographic areas enhances the ability of information users to assess their companies’ financial performance and predict their future economic returns and risks (Andre et al., 2016). The several industry segments or geographic areas of business operations may have different rates of profitability, levels of risk and uncertainty, and opportunities for capital growth. The investors, for example, cannot successfully assess a diversified corporation without information about its various segments as consolidated financial statements usually combine accounts of all the segments, and information about each segment may be indistinct (see, Franzen and WeiBenberger, 2018). Segment information, therefore, is one of the corporate disclosures required by generally accepted accounting principles as an integral part of corporate financial statements. It assists financial statement users in analyzing and understanding the company’s financial statements by permitting better assessment of the company’s past performance and future prospects, etc.

Reviewing the segmental reporting literature shows that there is a lack of both theoretical and empirical studies that collectively present a more complete framework of reasons that cause country-level differences in accounting practices. Likewise, to date, only a limited number of studies has empirically tested the impact of country-level characteristics and differences on both quantity and quality of segment reporting (see, Kajuter & Nienhaus, 2017; Leung & Verriest, 2015). Consequently, many scholars have debated that we are still far from being able to explain segment reporting practices in a diversified sample of cross-country studies and have called for a comprehensive investigation of the role that country-level characteristics can play to improve both quantity and quality of segment reporting practices (e.g., Brown et al., 2014; Kang and Gray, 2019; Kajuter & Nienhaus, 2017). Accordingly, our study (https://doi.org/10.1142/S1094406021500189)  aims to fill this gap in the literature by exploring whether and to what extent variation in both quantity and quality of segment reporting across EU companies may be explained by variation in country-level characteristics.

Using a cross-industry sample of 283 listed EU non-financial companies based on the Financial Times list, our study (Aboud & Helfaya, 2021: https://doi.org/10.1142/S1094406021500189) investigated the impact of the adoption of IFRS 8, the country’s legal system, and country-level of legal enforcement, investor protection, conservatism and distance between national GAAP and IFRS on both quantity and quality of segment reporting. We found that the adoption of IFRS 8 is positively related to a decrease (increase) in the quantity (quality) of segment reporting. We also found that common law countries, higher country-level of legal enforcement, and investor protection are positively related to higher quantity/quality of segment disclosure. While both country-level of conservatism and closeness between national GAAP and IFRS are negatively related to the quantity/quality of segment reporting. Generally speaking, prior literature demonstrates differences in accounting practices either at a macro level (e.g., legal, cultural, political, national accounting standards, national level of legal enforcement, conservatism, and investor protection) or at a micro-level (i.e., individual firms, industries, and organizational factors), or relate the differences to the individual attributes of the accountants and accounting firms (e.g., work experience, education, and professional qualifications, and personal skills) (see, Kang and Gray, 2019; Tang et al., 2016).

Lastly, our study (https://doi.org/10.1142/S1094406021500189) has some implications for capital markets’ users and standard setters. The findings of this study show the impact of the adoption of IFRS 8 and country-level characteristics on enhancing the quality of segment reporting. Thus, it provides feedback to regulators regarding the ongoing debate on the quality of segment reporting under IFRS 8. For example, future post-implementation reviews should consider a longer period when reviewing other standards. Moreover, this study provides useful implications to regulators, capital markets participants, and other institutional organizations about the effectiveness of country-level characteristics in enhancing a transparent environment with a high quantity and quality of segment reporting in the EU. For standard-setters who attempt to improve the quality of financial reporting, country-level characteristics (e.g., the legal system, enforcement, investor protection, and culture) are important elements of segment disclosure levels worldwide. For capital markets participants and financial reporters, our results confirm that the adoption of IFRS 8 has a significant impact on the quantity and quality of segment reporting. So, financial analysts and investors can use this highly disaggregated information (i.e. country-level information) to assess companies’ financial performance and capital market risks and uncertainties.              


Aboud, A., & Helfaya, A. (2021). Role of Country-Level Characteristics in Segment Reporting: EU Evidence. The International Journal of Accounting, 56 (04). https://doi.org/10.1142/S1094406021500189.

Aboud, A., & Roberts, C. (2018). Managers’ segment disclosure choices under IFRS 8: EU evidence. Accounting forum, Vol. 42(4), pp. 293-308.

Aboud, A., Roberts, C., & Zalata, A. M. (2018). The impact of IFRS 8 on financial analysts’ earnings forecast errors: EU evidence. Journal of International Accounting, Auditing and Taxation, 33, 2-17.

Akamah, H., Hope, O. K., & Thomas, W. B. (2018). Tax havens and disclosure aggregation. Journal of International Business Studies, 49(1), 49-69.

Andre, P., Filip, A., & Moldvan, R. (2016). Segment Disclosure Quantity and Quality under IFRS 8: Determinants and the Effect on Financial Analysts’ Earnings Forecast Errors. The International Journal of Accounting, 51, 443–461.

Baldini, M., Dal Maso, L., Liberatore, G., Mazzi, F., & Terzani, S. (2016). Role of country-and firm-level determinants in environmental, social, and governance disclosure. Journal of Business Ethics, 1-20.

Brown, P., Preiato, J., & Tarca, A. (2014). Measuring Country Differences in Enforcement of Accounting Standards: An Audit and Enforcement Proxy. Journal of Business Finance & Accounting, 41(1), 1–52.

Franzen, N., & WeiBenberger, B. (2018). Capital market effects of mandatory IFRS 8 adoption: An empirical analysis of German firms. Journal of International Accounting, Auditing & Taxation, 31, 1–19.

Kang, H., & Gray, S. (2019). Country-specific risks and geographic disclosure aggregation: voluntary disclosure behaviour by British multinationals. The British Accounting Review, http://doi.org/10.1016/j.bar.2019.02.001.

Kajuter, K., & Nienhaus, M. (2017). The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports. ABACUS, 53 (1), 28–58.

Leung, E., & Verriest, A. (2015). The impact of IFRS 8 on geographical segment information. Journal of Business Finance & Accounting, 42(3&4), 31–77.

Tang, Q., Chen, H., & Lin, Z. (2016). How to measure country-level financial reporting quality? Journal of Financial Reporting and Accounting, 14(2), 230-265.

Wang, Q. (2016). Determinants of segment disclosure deficiencies and the effect of the SEC comment letter process. Journal of Accounting and Public Policy, 35, 109–133.

Read our full article: https://doi.org/10.1142/S1094406021500189

To cite this article: Aboud, A., & Helfaya, A. (2021). Role of Country-Level Characteristics in Segment Reporting: EU Evidence. The International Journal of Accounting, 56 (04). https://doi.org/10.1142/S1094406021500189