Value Relevance of the Multi-step Income Statement in Japan
AbstractThis paper investigates the relationship between value relevance of the multi-step income statement and managerial opportunistic behavior. In Japan, net income is disclosed by three steps, i.e., 1) operating profits from core operating activity, 2) ordinary income, measured by adding gains and losses from non-core operating and financing activities to operating profits, and 3) net income that is bottom line performance in the income statement. While Japanese firms achieve income smoothing, loss avoidance and big bath, the managerial opportunistic behavior is simply identified by the observation of multi performance measures. We find that the firms doing income smoothing, loss avoidance and big bath, which are identified by the multi-step income statement, have the different value relevance of earnings from other firms. In many cases, earnings management decreases the value relevance of earnings. The results suggest that the multi-step income statement enables investors to detect earnings management without apparent difficulty and that earnings become more useful when investors use the information contained in it.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-403.
Date of creation: Mar 2006
Date of revision:
Contact details of provider:
Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).
If references are entirely missing, you can add them using this form.