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1. Introduction
Segment reporting requirements have been extended worldwide in response to calls from the investment community and as part of harmonisations projects between countries. Current segment reporting standards include IFRS 8 Operating Segments (IASB) and SFAS 131. FASB previous research has demonstrated that segment data are useful for investors and analysts (for predicting future earnings, e.g. Kochanek, 1974 and Collins, 1976; for foreign earnings valuation, e.g. Bodnar and Weintrop 1997; and for improving forecasting confidence, e.g. Birt and Shailer, 2011)[1]. In this study we extend the research to a developing economy, i.e. India. Segment reporting is important as research studies in accounting have found noticeable variation in the level of segment disclosure across listed reporting entities and this suggests a need for regulators to further monitor the enforcement of required segment disclosures. While the accounting research literature has investigated segment reporting in the banking sector in developed markets, little focus has been directed at emerging markets where the quality of accounting standards and their enforcement is often questioned. The Indian economy has recently witnessed a substantial flow of investment through foreign direct investment and foreign institutional investing in the last decade (Srinivasan and Narasimhan, 2012). The Indian banking sector is a particularly interesting sector to investigate because of the ownership reforms (Sathye, 2003), diversity of the banking sector and the current status of its segment reporting requirements. India currently adopting Indian Accounting Standards (Ind AS) 17 Segment Reporting but will be implementing Indian Accounting Standards (Ind AS) 108 Segment Reporting in the near future, which will result in harmonisation with the current requirements of the international segment reporting standard IASB.
In this study, we hypothesise that a segment-based valuation model provides additional value relevant information than a model based on consolidated data alone. This approach is similar to that adopted in Birt and Shailer (2013) and Kajüeter and Nienhaus (2017). Financial analysts and investors support the notion that an increase in disaggregation assists in understanding the risk profile and growth of diversified entities. Different segments have different streams of cash flows to which are attached separate risks (Troberg et al., 2010). Segment data can be assessed along with external sources of information such as relevant industry data and respective foreign exchange rates for...