Nowhere to hide: Response of corporate restructuring activities to mandatory segment disclosure

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Vol. 76; p. 102251
• Main Authors: Le, Trinh Hue, Oliver, Barry, Tan, Kelvin Jui Keng
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-10-2022
• Subjects: Corporate restructuring; Mandatory segment disclosure; Mergers and acquisitions; SFAS 131; Spinoff; Spinoff; Mergers and acquisitions; SFAS 131; Corporate restructuring; Mandatory segment disclosure
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2022.102251

We examine the effect of mandatory financial disclosures, specifically SFAS 131, on corporate restructuring activities by using difference-in-differences (DiD) and regression discontinuity design (RDD) settings. After the adoption of SFAS 131, firms are less likely to engage in acquisitions than are the control firms. Furthermore, conditional on firms' engagement in acquisition activities, acquirers are less likely to complete their initiated acquisition deals, especially for those value-destroying deals. After the implementation of SFAS 131, we find that the equity market reacts positively to large and diversifying deals that are subject to mandatory segment disclosures. Overall, our results suggest that the segment disclosure standard helped prevent managers from undertaking new, value-destroying M&As post-SFAS 131. Finally, these SFAS 131–induced corporate restructuring activities are shown to help reduce the risk of a stock price crash.