The Effect of Segment Reporting and Disclosure of Subsidiaries on Stock Price Crash Risk

[연구목적] This study examines the effect of disclosing firms’ subsidiaries and segments to stock price crash risk. According to the “unraveling” result in the disclosure literature, full disclosure is inevitable. Although firms are expected to fully disclose, discretionary aggregation has also been considered a central tenet in financial reporting. Discretionary aggregation is a hurdle for full disclosure because negative and positive news offset each other. The purpose of this study is to investigate whether the unraveling result applies after the adoption of IFRS. [연구방법] Using a sample of Korean public firms for the period of 2010-2018, we measure firm-specific crash risk. We test out hypotheses using Ordinary Least Squares (OLS) regression and logit regression. [연구결과] Our test results suggest that reporting firms’ subsidiaries and segments is associated with lower levels of stock price crashes. Moreover, when we consider the product market competition, firms in less competitive industry disclose more segment information and have less crash risk. [연구의 시사점] Our paper adds to the current disclosure literature by providing aother favolable effect of reporting more segment information in the stock market.