Usefulness and relevance of reporting comprehensive income under international GAAPs: Insights from major European financial markets
Ramond, Olivier (2007), Usefulness and relevance of reporting comprehensive income under international GAAPs: Insights from major European financial markets, 30th European Accounting Association Annual Congress, 2007-04, Lisbonne, Portugal
TypeCommunication / Conférence
Conference title30th European Accounting Association Annual Congress
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; comprehensive income; Value-relevance
JELM41 - Accounting
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