The Impact of IFRS 8 Adoption on the Usefulness of Segment Reports

As part of the short-term convergence with US-GAAP, the IASB issued IFRS 8 ‘Operating Segments’ in 2006 which replaced IAS 14 for financial years beginning in 2009. Given the relevance of segment reporting, the major change involved in issuing IFRS 8 and the controversial views about the management approach inherent in the new standard, the IASB initiated a post-implementation review of IFRS 8 in 2012. The post-implementation review was completed in July 2013 and points out a lack of empirical evidence about the economic consequences of IFRS 8’s adoption for investors. We therefore analyse the impact of IFRS 8 on the usefulness of segment reports from an investor’s perspective. The analysis comprises three steps: First, we compare the value relevance of segment reports before and after the introduction of IFRS 8. Second, we analyse a treatment group of firms that had to change their segmentation upon IFRS 8 adoption and a control group that was unaffected by its introduction. Third, the requirement to report financial information for the current and the previous year under current accounting rules allows us to analyse a unique data set of segment reports for the same company and the same year under two different standards. Our results show superior value relevance of segment reports according to IFRS 8 compared to IAS 14 in all three steps. Additional analyses suggest that the adoption of IFRS 8 is also related to a decline in information asymmetry. Our findings are robust to a number of alternative specifications.