Date
2007
Dewey
Contrôle de gestion Comptabilité
Sujet
Value-relevance; comprehensive income; performance reporting
JEL code
M41
Conference name
American Accounting Association, International Accounting Section (IAS) Mid-Year Conference
Conference date
02-2007
Conference city
Charleston
Conference country
États-Unis
Author
Lin, Steve
Ramond, Olivier
Type
Communication / Conférence
Abstract (EN)
This study investigates the extent to which three key summary accounting income figures, namely operating income, net income and comprehensive income, provide value-relevant information to investors in Germany, France, Italy, Spain and the UK. Using a large sample over the pre-IAS-compliance period 1992-2004, we find that all these three accounting income measures are statistically associated with share returns in any of the countries under analysis although our results show some disparities in the degree of ‘usefulness’ across country samples. Our main results are then threefold. We first provide evidence that comprehensive income is less value-relevant than both the bottom-line and operating income figures in all the sample countries. Second, our results show that aggregate other comprehensive income (or dirty surplus flow) is value-relevant and provides incremental price-relevant information beyond net income in most of the sample countries. This finding is rather different from the existing literature based in the US and UK that suggests other comprehensive income is generally not value-relevant especially when it is not separately disclosed in financial statements. Finally, we find that increased transparency on reporting other comprehensive income in financial statements as required by the UK (FRS3) and US (SFAS130) accounting standards may have warranted a stronger statistical association between firm share returns and comprehensive income. This last finding therefore strongly supports the ideology underlying the IASB/FASB joint project on ‘Performance Reporting’, and also provides evidence supporting Beaver’s (1981) and Hirst and Hopkins’ (1998) psychology-based financial reporting theory.