Geographic segment disclosures under SFAS 131 and financial analysts' assessment of foreign investment risk

The issue of segment reporting, originally introduced by the Financial Accounting Standards Board (FASB) through the Statement of Financial Accounting Standards (SFAS) 14 in 1977, was revisited and financial disclosure was altered through the enactment of SFAS 131 in 1997. SFAS 131 has introduced the requirement that geographic area information be disclosed by individual country.;This dissertation examines four research questions regarding geographic segment reporting: (1) are disclosures made at the individual country level more useful than disclosures made at a more aggregated geographic segment level; (2) does the usefulness of country level disclosures vary by the level of risk associated with the countries disclosed; (3) does the usefulness of country level disclosures vary by region of the world; and (4) at what quantitative threshold do the operations in an individual country become material?;A between-subjects experimental approach using equity analysts is used to examine these four research questions. Subjects are asked to indicate the level of risk (dependent variable) that they associate with an investment in a hypothetical multinational corporation. Additionally, they are asked to indicate the degree of confidence (dependent variable) they have in their risk assessment. Four treatment variables (aggregation level of geographic areas, country risk, region of the world, and materiality level) are manipulated in ten cases to examine these research questions.;With respect to the level of risk dependent variable, planned comparison testing found that financial analysts perceive a company with operations in a low risk country to be less risky than a company with operations in a high risk country regardless of location of the country. Tests of contrasts for a region of the world effect found a significant difference only when the difference in risk assessment between the two countries in "western" Europe was compared with the difference in risk assessment between two countries in Asia-Pacific and only at the five percent materiality level. The results from the materiality of operations testing indicate that as little as five percent of operations can lead to a significant change in risk assessment.