Geographical Segment Disclosures: Usefulness in Forecasting Turnover and Profits of U.K. Multinationals

Roberts, Clare Barbara (1987) Geographical Segment Disclosures: Usefulness in Forecasting Turnover and Profits of U.K. Multinationals. PhD thesis, University of Glasgow.

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There is a considerable quantity of evidence regarding the usefulness of segmental information on a line of business basis. However, there is very little evidence available regarding the value of geographical segment information. The objective of this study is, therefore, to investigate the usefulness of the geographical segment information currently provided by U.K. multinational companies. The uses that geographic segment information may be put to are many and varied. Accordingly, this study examines only one possible use of such information. Namely, whether it can be used to make forecasts of turnover and earnings. One year ahead forecasts of turnover and earnings were made for the years 1981 to 1983 for a sample of 109 U.K. multinational companies. These forecasts were based upon consolidated information, segmental turnover and segmental earnings data. The relative accuracy of the forecasts were then compared using four error measures which were both non-truncated and truncated at 100%. The forecasting models used were six naive consolidated models which represent all the major classes of naive models that evidence on the time series properties of earnings suggests might be useful and six segment based models. The segment models were based upon forecasts of changes in the GNP of individual countries which were then aggregated into segment forecasts with the weights based upon the size of total GNP in each country. Four of the forecasts were based upon various assumptions concerning the importance of inflation and two were based upon expost changes in GNP. Forecasts of earnings using the segmental disclosures were developed in two ways. Firstly, upon segment turnover data combined with the the average earnings to turnover margin and, secondly, upon segment earnings data. Using the models to forecast turnover it was found that the consolidated models significantly outperformed the segment turnover based models. When forecasting earnings it was found that, again, the segment turnover based models did not outperform the consolidated models. However, the segment earnings based models significantly outperformed the segment turnover based models and, in most cases they also outperformed the optimal consolidated model, especially in respect of the non-truncated error measures. Thus, the results are very different from those from prior research into the usefulness of line of business information. For line of business information it was found that segment turnover based models significantly outperformed consolidated models and that the addition of segmental earnings information provided little or no improvement. Several possible reasons for the differences between these results and those found previously for line of business information are suggested.

Item Type: Thesis (PhD)
Qualification Level: Doctoral
Keywords: Accounting, Finance
Date of Award: 1987
Depositing User: Enlighten Team
Unique ID: glathesis:1987-77686
Copyright: Copyright of this thesis is held by the author.
Date Deposited: 14 Jan 2020 11:53
Last Modified: 14 Jan 2020 11:53

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