Refer to Theory in Practice 12.1.

Required
a. Give reasons why GE’s share price fell during 2001– 2002. Give reasons why increased disclosure exerts upward influence on a firm’s share price.
b. Despite GE’s increased segment disclosure, numerous analysts and investors were concerned that the company’s increased disclosure did not extend to reporting how much of its consolidated earnings came from the earnings of new subsidiaries and how much from previously acquired ones. The source of these concerns appeared to be GE’s practice of “buying earnings” by acquiring profitable companies whose earnings exceeded the cost of financing the acquisitions. To what extent will GE’s increased segment disclosures reduce investor concerns about low transparency of GE’s financial reporting?