An empirical investigation into geographic segment disclosure and its association with systematic risk (beta)

This research investigates an hypothesized association between the geographic disclosure provided by multinational corporations (MNCs) in their financial statements and the systematic risk (beta) of their equity securities in the capital markets. Past research demonstrated the association for pre- and post-disclosure periods across the event caused by FASB 14. This research is in a less restrictive setting and tests disclosure differences across firms and disclosure changes over time.;Content analysis represents geographic disclosure as a single variable. Content categories symbolize specific geographic information items. Factor analysis of the categories produces factor scores for each MNC. Summed factor scores create a single geographic disclosure index. A multiple regression model tests the association between beta (the dependent variable) and the disclosure index (the independent variable of interest). To remove their effects, the model includes three determinants of beta identified from prior research.;The results show that the disclosure index is inversely associated with beta for both differences across firms and changes over time. Thus, greater geographic disclosure by MNCs is associated with reductions in the systematic risk of their equity securities in the capital markets.