Research On Value Relevance Of Other Comprehensive Income In China’s Listed Companies

There are two kinds of views of the recognition and measurement of income: the assetliability view and the income cost view. The traditional pattern of income-determining adoptsthe income cost view. However, with the changes of the global economic environment, theshortcomings of the traditional pattern of income-determining has become increasinglyprominent which can not provide more comprehensive and complete information for itsusers. Foreign studies have shown that the presentation of the comprehensive income helps toimprove the value relevance of the income statement, and has certain advantages in reportingcomprehensive income. So many foreign countries choose the asset liability view to recognizeand measure earnings information and requests listing comprehensive income and othercomprehensive income in the financial report in order to improve information quality ofearnings.Since the new accounting standards carried out in2006, China has made correspondingregulations about the presentation and disclosure of other comprehensive income. However,in the degree of development of capital markets, can the mandatory presentation anddisclosure of other comprehensive income play a role to improve the quality of earningsinformation? Researching on this issue has important practical significance to evaluate theimplementation of the results of the accounting standards and improve reform of financialreport in our country. This paper chooses data of the financial statements (2007to2009) fromShanghai A-share listed companies, builds the price model, and uses empirical methods to testvalue relevance of other comprehensive income and its elements. Empirical results found that:(1) The value relevance of other comprehensive income has not significant value relevance.However, comprehensive income including other comprehensive income and net incomepresents significant value relevance which weaker than net income.(2)The relationshipbetween each component of other comprehensive income and stock price makes a greatdifference. Changes of fair value on available-for-sale financial assets and the effect ofchanges of other owners’ equity of the invested entity method are positively correlated withstock price, other components are not.The empirical results show that: the traditional pattern of income-determining is deep-rooted, accounting information users prefer the net income to estimate the operatingresult of the corporate. With the changes of the economic environment, other comprehensiveincome has been changing the presentation pattern of earnings and the comprehensive incomebegins to receive the attention of the public, which can reflect more comprehensive andcomplete information. But the time that the presentation and disclosure of othercomprehensive income is short, listed companies have not presented and disclosed othercomprehensive income standardized, and investors’ awareness and understanding of othercomprehensive income is not sufficient, therefore, the market has not yet to make an effectiveresponse. This indicates that should further improve relevant education to investors, at thesame time, we should strengthen the norms of the presentation and disclosure of othercomprehensive income continuously, and promote the value of accounting information byimproving the value relevance of other comprehensive income constantly.