Geographic Financial Reporting and Growth Variables

Abstract

The objective of this study is to investigate how growth variables affect the degrees of conservatism. This study extends Hwang and Kim (2012) by incorporating various growth variables in explaining the degrees of conservatism of geographic segmental earnings. This study posits that when the multinational firms’ growth declines the negative economic shocks to the companies are incorporated into geographic segmental earnings differently. I employ the various growth variables at the firm-level versus segment-level and test how the impact of growth variables differentiates between the degrees of conservatism of geographic segmental earnings. Overall I find that firms with experiencing the declining growths are likely to incorporate those negative economic shocks into geographic segmental earnings differently. More importantly, the empirical findings suggest that the impacts of negative growth variables on geographic segmental earnings are more pronounced in domestic earnings than foreign earnings.

Keyword: Geographic segment, Segmental reporting, Conditional conservatism, Growth.