Value relevance of comprehensive income and its components: Evidence from major European capital markets
Casta, Jean-François; Ramond, Olivier; Lin, Stephen (2007), Value relevance of comprehensive income and its components: Evidence from major European capital markets, Europlace Institute of Finance - 5th International Financial Research Forum, 2007-06, Paris, France
TypeCommunication / Conférence
Conference titleEuroplace Institute of Finance - 5th International Financial Research Forum
MetadataShow full item record
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.
Subjects / Keywordsperformance reporting; other comprehensive income; comprehensive income; Value-relevance
Showing items related by title and author.
On the Relevance of Reporting Comprehensive Income under IAS / IFRS: Insight from Major European Capital Markets Casta, Jean-François; Ramond, Olivier; Lin, Steve; Batsch, Laurent (2007) Communication / Conférence
Economic Properties of Recognized Intangibles under Domestic Accounting Standards: Evidence from European Capital Markets Escaffre, Lionel; Ramond, Olivier; Casta, Jean-François (2008) Communication / Conférence