Research On The Usefulness Of Comprehensive Income Of Chinese Listed Companies

The Ministry of Finance issued《Enterprise Accounting Standards No.3》，proposes thatcomprehensive income and other comprehensive income must displayed in income statement,and changes in the balances of items of other comprehensive income also be displayed inincome statement, that means Chinese accounting standard from the traditional income modelto the comprehensive income mode. Based on data of the annual financial statements in2009from Shanghai and Shenzhen A-share listed companies，this paper empirically investigates theefficient use of comprehensive income through the price model and Basu model. Unlike theprior research，this study not only introduces the value-relevance of comprehensive income,but also introduces the conservatism of comprehensive income. The main conclusions are asfollows:(1)Traditional net income and comprehensive income both have the value-relevance，butthe value-relevance of comprehensive income is stronger than that of traditional income.Other comprehensive income information strengthens explanation power， but theexplanation power of disaggregated items of other comprehensive income is higher than thatof total other comprehensive income.(2)The relationship between each component of other comprehensive income and stockprices makes a great difference. The effect of changes of other owners’ equity of the investedentity under the equity method and the effect of changes of foreign currency translation are allremarkably correlated with stock prices. However，other components cannot enhance thevalue-relevance of accounting information.(3)Among the control variables in the price model, the current ratio is significantlypositively associated with stock prices, but scale and tradable share proportion are bothsignificantly negatively associated with stock prices.(4)Accounting earnings of net profit and comprehensive income confirmate bad newstimeliness than good news. That means net profit and comprehensive income have theconservatism, but not significant. The conservatism of traditional income is stronger than thatof comprehensive income.Due to the other comprehensive income single item test, we recognize that the othercomprehensive income single item is very important. It is often aggregated in such a way thatthe amounts of individual components of other comprehensive income will offset its impacton stock price, at the same time, the comprehensive income included high risk, uncertainty ofthe gains and losses also makes its conservatism not significant, so we hope to remind investors pay more attention to the details of other comprehensive income, suggested thatenterprises strengthen the disclosure of other comprehensive income, in order to reduce themanagers’ earnings management space, to highlight the performance of transparency.