The Use of Segment Information by Financial Analysts and Forecast Accuracy: A Study on European Intermediate-Size Companies
This research investigates the usefulness for financial analysts of segment information disclosed by European intermediate-size companies reporting under IFRS. While most studies on segment information usefulness focus on the consensus aggregated from financial analysts’ forecasts for blue-chip companies, our study contributes to the literature by investigating the recommendation reports of financial analysts covering European intermediate-size companies. The study is based on an original, hand-collected database obtained from a sample of 339 analysts’ recommendation reports for 146 firms. Our research reveals that though a majority of analysts refer to segment information in their reports, only a few of them use it in their valuation models. Moreover, it also demonstrates that the use of segment information by financial analysts is higher for larger firms than for smaller ones and is not associated with greater forecast accuracy. Hence, our results question the usefulness of segment information disclosures for small firms. © 2016 Wiley Periodicals, Inc.