During today’s Research Office Hours, Christine Botosan, Susan McMahon, and Mary Stanford shared insights from their recent working paper “Representationally Faithful Disclosures, Organizational Design, and Managers’ Segment Reporting Decisions.”  In their paper, they investigate whether SFAS 131 had its intended effect — providing users with better information about segment disclosures by encouraging more disaggregated segment information organized along the same groups used by management to manage the business.  Christine’s slides are posted here.

They described a novel approach that draws on research in management to develop expectations about firms’ optimal organizational design and find evidence that supports the claim that SFAS 131 improved the correspondence between firms’ internal organizational structures and the segments reported in their financial statements, consistent with the “management view” intended in the FASB standard.

Given that the “management view” is invoked in the FASB’s Financial Statement Presentation Project for purposes of classifying activities, this research is potentially useful in foreshadowing how firms might respond in the context of that proposed standard.