Exploring the influence of institutional factors on the segment disclosure practices of large European listed entities

Research Question: How do institutional pressures influence segment-related disclosures in the footnotes to financial statements and in the narrative part of the annual reports? Motivation: Disclosure about operations of segments is important information for investors and other capital market participants. Idea: I analyze occurrence, clarity and consistency of segment disclosures regarding segment identification and the measures reported by segment. I employ Oliver’s (1991) framework to explore variations in segment disclosures across the sample and to examine the role of the institutional factors for different disclosure strategies. Data: The sample is drawn from S&P Europe 350 entities, an index including the most liquid and investable markets in Europe. The final samples comprises 246 non-financial European listed companies. Findings: The analysis suggests that different types of disclosure can be linked to specific institutional factors. Mandatory disclosure is explained mostly by Constituents (ie capital market variables) and Control factors (enforcement) while Clarity of disclosures is more likely to be affected by Constituents and Content (proxies for proprietary costs) factors. Companies are more likely to use compromise, avoidance and defiance strategies in determining their segment reporting disclosure behaviours. The differences in the disclosure strategy followed by companies is mostly driven by Constituents and Content. Contribution: This study extends the way segment disclosures are analyzed. It contributes to the disclosure literature and to the literature on disclosure determinants. This evidence will be informative for practitioners, standard setters and regulators in particular as they seek to improve disclosure practices in financial reports.