Segment Reporting to the Capital Market in the Presence of a Competitor

In this paper we model a firm's choice of how finely to report its segmental performance, given that its disclosures will be observed by both a rival firm and the capital market. We find that when competition with the rival is sufficiently severe, the firm's value is highest when its privately-observed signals are sufficiently similar and it discloses these signals as separate segments. In this case the capital market becomes better informed yet the rival firm learns very little about where to allocate its capital. Consequently, in equilibrium, only firms with sufficiently similar results from their different activities will choose to report them as separate segments; firms with disparate results will aggregate them together into a single reported segment