SEC Line-of-Business Disclosure and Market Risk Adjustments

Abstract

One of the most pervasive and controversial disclosure requirements initiated by the SEC in recent years has been line-of-business (LOB) reporting for multisegment firms.' The stated objective of LOB disclosure was to provide investors with information useful in assessing the earnings potential and the risk of firms involved in several divergent areas of economic activity. Kinney [1971], Barefield and Comiskey [1975], and Collins [1976], among others, have provided evidence to suggest that disclosure of segmental data does enhance one's ability to predict the future earnings of multisegment firms. Horwitz and Kolodny [1977] have reported findings concerning the information content of segmental disclosure with respect to market risk assessments. They conclude that the initiation of SEC LOB reporting requirements had no effect on the market riskiness of multisegment firms.2 The primary purpose of this