There are some factors that may denominate firms to report the segments results in their financial statements. First of all, the factors that will denominate the firms are how the operating segment information will be disclosed in the financial statements.
Obviously, it is common for the public listed company to disclose all the information with more detailed in the financial statements in order to show the value of company during the period. The problem is when the company decides to disclose more detailed information which it will publish the additional information to the public. One thing is when the company decided to publish the additional information it will incurred some cost which known as proprietary cost.
Some people may argue that the company will escape to pay the proprietary cost when incurred, so the company will obviously choose to tot to disclose information that are not necessary by the regulation. Moreover, it will lead the company to disclose information that is not really useful in the financial statements when there is an additional cost incur and increasing in the disclosure requirements. Another thing is when the company disclose the information it has to be make sure that there is no competitive harm in the publish information.
For some reasons it may occurs competitive harm to the company when disclosed a lot of information especially internal information. Besides having the additional cost incurred which is the proprietary cost when disclosed too detailed information, another thing is the competitors may have an advantage from the disclosure of the segments information. Besides that, the denominating factors for the firms to report operating segments is the usefulness of the information to the users Bimodal K. Propaganda and Malcolm C. Harris (1989) discuss the role of geographical segment disclosure for multinational firms.
They argue that unless geographic disclosure exists, investors will not be able to sees correctly a multinational company’s risks and potentials, given the high amount of different economic environments in which it operates. Additionally, firms which operate in less risky environments will have incentive to disclose their status, in order to distinguish themselves from firms that operate in more risky environments.
