Regulatory oversight of capital markets has intensified in recent years, with a particular emphasis on expanding financial transparency. A notable instance is efforts by the Financial Accounting Standards Board that push firms to identify and report performance of individual business units (segments). This paper seeks to address short-run and long-run consequences of stringent enforcement of and uniform compliance with these segment disclosure standards. To do so, we develop a parsimonious model wherein a regulatory agency promulgates disclosure standards and either permits voluntary compliance or mandates strict compliance from firms. Under voluntary compliance, a firm is able to credibly withhold individual segment information from its competitors by disclosing data only at the aggregate firm level. Consistent with regulatory hopes, we show that mandatory compliance enhances welfare by increasing transparency and leveling the playing field. However, our analysis also demonstrates that in the long run, if firms are unable to use discretion in reporting to maintain their competitive edge, they may seek more destructive alternatives. Accounting for such concerns, in the long run, voluntary compliance can provide an upside for all parties. Copyright © 2013 John Wiley & Sons, Ltd.