The Effect of SFAS No. 131 on the Diversification Discount

For a sample of diversified firms, I investigate the impact of the segment reporting rule change from SFAS No. 14 to SFAS No. 131 in 1997. This change in segment-reporting rules to SFAS No. 131 potentially allows more precise estimation of diversification discount. I probe the changes in the diversification discount before and after the reporting rule change in 1997. I find that there is a substantial increase in the diversification discount under SFAS No. 131. Further analysis indicates that the changes in the diversification discount are unrelated to the changes in firm value or investment efficiency. Instead, the measures of diversity appear to be more associated with the changes in excess value. This indicates that excess value is not a clean measure of diversification discount