IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v10y2018i6p1837-d150236.html
   My bibliography  Save this article

Market Reaction to Other Comprehensive Income

Author

Listed:
  • HeeJin Park

    (Division of Accounting/Tax and Management Information Systems, Kyonggi University, 154-42 Gwanggyosan-ro, Yeongtong-gu, Suwon-si, Gyeonggi-do 16227, Korea)

Abstract

The comprehensive income statement was adopted as the standard type of financial statement in 2011, and other comprehensive income (OCI) was included in the text of the financial statements. While OCI (unrealized income) is less sustainable than net income, it can help to assess a firm’s value. Therefore, testing the usefulness of OCI is important in analyzing whether persistence of earning information affects a firm’s value. The text of the financial statements enables market participants to access not only the realized net income (operating income, non-operating income), but also information on comprehensive income, which has not yet been realized. Although levels of realized and unrealized income indicate an increase in net worth, changes in realized and unrealized income differ in terms of uncertainty; it is, therefore, more important for market participants to judge information’s usefulness. This study examines whether OCI increases earnings response coefficients (ERC). We analyzed the information content of OCI before and after international financial reporting standards (IFRS) to verify whether the information content varies as the format of OCI reporting changes from a footnote to the main text of the financial statement. In addition, we analyzed dividing OCI into positive OCI and negative OCI . The analysis showed that under the condition in which the realized income is constant, OCI (which is unrealized earnings) has additional information effects. This means that differences might be observed in the decision-making process depending on whether or not the OCI information is used.

Suggested Citation

  • HeeJin Park, 2018. "Market Reaction to Other Comprehensive Income," Sustainability, MDPI, vol. 10(6), pages 1-14, June.
    • Handle: RePEc:gam:jsusta:v:10:y:2018:i:6:p:1837-:d:150236
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/10/6/1837/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/10/6/1837/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Veltri, Stefania & Ferraro, Olga, 2018. "Does other comprehensive income matter in credit-oriented systems? Analyzing the Italian context," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 30(C), pages 18-31.
    2. Khan, Shahwali & Bradbury, Michael E., 2014. "Volatility and risk relevance of comprehensive income," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 76-85.
    3. Dan S. Dhaliwal & Kyung J. Lee & Neil L. Fargher, 1991. "The association between unexpected earnings and abnormal security returns in the presence of financial leverage," Contemporary Accounting Research, John Wiley & Sons, vol. 8(1), pages 20-41, September.
    4. Hirst, DE & Hopkins, PE, 1998. "Comprehensive income reporting and analysts' valuation judgments," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 47-75.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 159-178.
    7. Collins, Daniel W. & Kothari, S. P., 1989. "An analysis of intertemporal and cross-sectional determinants of earnings response coefficients," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 143-181, July.
    8. Alain Devalle & Riccardo Magarini, 2012. "Assessing the value relevance of total comprehensive income under IFRS: an empirical evidence from European stock exchanges," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 8(1), pages 43-68.
    9. Kim, Jung Hoon, 2016. "Presentation formats of other comprehensive income after accounting standards update 2011-05," Research in Accounting Regulation, Elsevier, vol. 28(2), pages 118-122.
    10. Dhaliwal, Dan & Subramanyam, K. R. & Trezevant, Robert, 1999. "Is comprehensive income superior to net income as a measure of firm performance?1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 43-67, January.
    11. Steven F. Cahan & Stephen M. Courtenay & Paul L. Gronnewoller & David R. Upton, 2000. "Value Relevance of Mandated Comprehensive Income Disclosures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(9&10), pages 1273-1302.
    12. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    13. Kormendi, Roger & Lipe, Robert, 1987. "Earnings Innovations, Earnings Persistence, and Stock Returns," The Journal of Business, University of Chicago Press, vol. 60(3), pages 323-345, July.
    14. Steven Cahan & Dirk E. Black & Steven Cahan, 2016. "Other comprehensive income: a review and directions for future research," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(1), pages 9-45, March.
    15. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    16. Skinner, Douglas J., 1999. "How well does net income measure firm performance? A discussion of two studies1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 105-111, January.
    17. Kanagaretnam, Kiridaran & Mathieu, Robert & Shehata, Mohamed, 2009. "Usefulness of comprehensive income reporting in Canada," Journal of Accounting and Public Policy, Elsevier, vol. 28(4), pages 349-365, July.
    18. Schaberl, Philipp D. & Victoravich, Lisa M., 2015. "Reporting location and the value relevance of accounting information: The case of other comprehensive income," Advances in accounting, Elsevier, vol. 31(2), pages 239-246.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. In Tae Hwang & Kang Sung Hur & Sun Min Kang, 2018. "Does the IFRS Effect Continue? An International Comparison," Sustainability, MDPI, vol. 10(12), pages 1-20, December.
    2. Melik Ertugrul & Ali Coskun, 2019. "DoesS Recycling Contribute To Accounting Quality," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 33(2), pages 1-18.
    3. Mohammad Ali Al Hayek & Abdel-Rahman kh. El-Dalabeeh *, 2019. "The Impact of Comprehensive Income on Owners Equity at the Jordanian Commercial Banks, Analytical Study," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(9), pages 1312-1320, 09-2019.
    4. Hyejeong Shin & Su-In Kim, 2018. "The Effect of Corporate Governance on Earnings Quality and Market Reaction to Low Quality Earnings: Korean Evidence," Sustainability, MDPI, vol. 11(1), pages 1-17, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yiting Cao & Qi (Flora) Dong, 2020. "Does reporting position affect the pricing of the volatility of comprehensive income?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1113-1150, October.
    2. Murad Harasheh & Federica Doni & Maria Vittoria Franceschelli & Andrea Amaduzzi, 2021. "The value relevance of Other Comprehensive Income: Extensive evidence from Europe," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3835-3851, July.
    3. Abderrahmane Djaballah & Anne Fortin, 2021. "Value Relevance of Comprehensive Income for the Canadian Market," Accounting Perspectives, John Wiley & Sons, vol. 20(1), pages 49-77, March.
    4. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    5. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    6. Igor Goncharov & Allan Hodgson, 2008. "Comprehensive Income In Europe: Valuation, Prediction And Conservative Issues," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(10), pages 1-1.
    7. Mohamed Sellami, 2006. "Typologie des déterminants comptables de la valeur : Apports de l'approche économique de l'information dans la mesure de la valeur," Post-Print halshs-00558252, HAL.
    8. Karola Bastini & Rainer Kasperzak, 2013. "Erkenntnisfortschritt in der Rechnungslegung durch experimentelle Forschung? — Diskussion methodischer Grundsatzfragen anhand der Entscheidungsnützlichkeit des Performance Reporting," Schmalenbach Journal of Business Research, Springer, vol. 65(7), pages 622-660, December.
    9. Core, John E. & Schrand, Catherine M., 1999. "The effect of accounting-based debt covenants on equity valuation1," Journal of Accounting and Economics, Elsevier, vol. 27(1), pages 1-34, February.
    10. Hyun Mi Ji, 2018. "The Usefulness of Accounting Information Derived by Applying the Percentage of Completion Method to Enhance Sustainable Business Practices: Evidence from South Korea," Sustainability, MDPI, vol. 11(1), pages 1-12, December.
    11. Cready, William M. & Hurtt, David N. & Seida, Jim A., 2000. "Applying reverse regression techniques in earnings-return analyses," Journal of Accounting and Economics, Elsevier, vol. 30(2), pages 227-240, October.
    12. Fargher, Neil & Wee, Marvin, 2019. "The impact of Ball and Brown (1968) on generations of research," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 55-72.
    13. Shi, Linna & Wang, Ping & Zhou, Nan, 2017. "Enhanced disclosure of other comprehensive income and increased usefulness of net income: The implications of Accounting Standards Update 2011–05," Research in Accounting Regulation, Elsevier, vol. 29(2), pages 139-144.
    14. Allan Hodgson & Mark Russell, 2014. "Comprehending Comprehensive Income," Australian Accounting Review, CPA Australia, vol. 24(2), pages 100-110, June.
    15. Shuto, Akinobu & Otomasa, Shota & Suda, Kazuyuki, 2009. "The relative and incremental explanatory powers of dirty surplus items for debt interest rate," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 18(2), pages 119-131.
    16. Aliyu Baba Usman & Aliyu Baba Usman & Noor Afza Binti Amran & Hasnah Binti Shaari, 2016. "The Value Relevance of Comprehensive Income in Nigerian: A Pilot Test," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 793-797.
    17. Burke, Qing L. & Wieland, Matthew M., 2017. "Value relevance of banks' cash flows from operations," Advances in accounting, Elsevier, vol. 39(C), pages 60-78.
    18. Melik Ertugrul & Ali Coskun, 2019. "DoesS Recycling Contribute To Accounting Quality," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 33(2), pages 1-18.
    19. Inês Pinto & Ana Isabel Morais, 2022. "Classification of Equity Instruments under IFRS 9: Determinants and Consequences," Australian Accounting Review, CPA Australia, vol. 32(4), pages 411-426, December.
    20. Thomas Ryttersgaard, 2021. "Bridge over troubled water: Is it possible to define other comprehensive income?," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2021(1), pages 61-87.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:10:y:2018:i:6:p:1837-:d:150236. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.