Abstract
This paper verifies the discretionary behavior of the management in segment financial reporting. Pseudo-segments were produced based on the internal data of companies, and compared with their externally reported segments. As a result, it was found that before adopting the management approach（ MA）, the management of Japanese companies tends to refrain from disclosing the results of non-competitive businesses that have a high present value or unprofitable businesses that have a low present value. This finding is consistent with the proprietary cost （PC） hypothesis and the agency cost（ AC） hypothesis. Through the study of the situation after the adoption of the MA, it was confirmed that the ratio of companies that report pseudo-segments increased significantly. However, not all businesses are reported equally, and the management still tends to refrain from disclosing the results of business segments whose PC or AC is large. Accordingly, little evidence was found for indicating the restraint on the above mentioned discretionary behavior. After the introduction of MA, I rather found some evidence implying the augmentation of this tendency. By using the internal and publicly disclosed data of Japanese listed companies, this study contributed by giving initial evidence of the discretionary behavior of the management in segment classification before the adoption of the MA, the effects of the MA on the behavior, and remaining problems.
