Does The Presentation Of Comprehensive Income And Its Components Have Higher Value Relevance?

From the1980s, foreign countries began to appear and gradually pay attention to the conceptof "comprehensive income". According to this concept, they amend the content and presentation of financial statements. In order to keep more consistent with international financial guidelines, China introduced the concept of "comprehensive income" in our new financial guidelines, through continuous development, in June10th2009, the Ministry of Finance issued "the accounting standard explaining announcement No.3"which regulates that company should add the item "Other Comprehensive Income" and "Comprehensive Income" under the item "Net Income per Share". Meanwhile, In November31st2009,"The announcement of the implementation of accounting standards of listed companies and non-listed to the annual reporting of the year2009from the Ministry of Finance" embodied the details of each item of other comprehensive income and its format and content in the notes. This policy is consisting with the trend of China’s accounting standards being consistent with the international financial reporting standards.So, based on the macro background, this thesis researched on three issues combined with the actual situation of Chinese capital market:first, tested value relevance of the presentation of simple total comprehensive income, and compared it with the presentation of net profit; second, as the specific composition of the comprehensive income, did the presentation and disclosures of other comprehensive income raise the value of correlation? Third, if the presentation of other comprehensive income raised the value of correlation, can investors who used this to make decision gain?It means we will verify the reaction of the market in other comprehensive income is corrected.To complete the research, this paper chose the data of the annual financial statements on2010from Chinese A-share listed companied, and empirically investigated the value relevance of comprehensive income^net profit through models based on Ohlson Model. Unlike the prior research, this thesis introduced specific components of comprehensive income, and compared the value relevance brought by all these different factors. At last, we got the main conclusions as follow:(1)The value relevance of comprehensive income isn’t stronger than that of net profit. This conclusion may be due to the following two reasons:On the one hand, the concept of "comprehensive income" was introduced in2009, it’s a new thing for investors, therefore, investors are more inclined with the mature indicators of net profit for their decision-making. On the other hand, the total comprehensive income contain complex information, however, it needs cost and professional skills to collect and analyst these specific information contained in the total comprehensive income. Therefore, most investors do not have such conditions. So the value relevance of comprehensive income isn’t stronger than that of net profit(2)The presentation of specific of comprehensive income strengthens explanation power, and brings higher value relevance than net profit.The reason for this conclusion is easy to understand. After the secondary decomposition of comprehensive income, it means that financial statements help investors to decompose the complex comprehensive income, investors can directly access and understand these specific information which can reflect the real value of companies and their overall performance. So, these specific information can help investors to make decision easier, and they choose these indicators as their decision-making reference. So, the presentation of specific of comprehensive income strengthens explanation power, and brings higher value relevance than net profit.(3) For the last question, we use event study method to comparative analysis companies which have higher Other Comprehensive Income and companies which have lower Other Comprehensive Income. Comparing the Cumulative Abnormal Return during the annual report disclosure period between the two groups. We infer that the capital market reflect the Other Comprehensive Income correctly.