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

With the diversification of business operation and the complication of externalenvironment, such factors as inflation and financial innovation are striking the dominantposition of net profit. Based on the historical cost principle, matching principle andrealization principle, net profit is increasingly unable to meet diverse information needsthat were put forward by accounting information users. In response to these newconditions, international authoritative accounting professional bodies started to explorea new revenue model and thus proposed the concept of comprehensive income. Aimingat making our accounting standards more advanced and scientific, our country timelyintroduced comprehensive income concept to comply with the international new trendabout accounting and disclosure requirements. Financial statements presentationstandards formally implemented in July2014also gave a luminous description of thedefinition and accounting treatment of comprehensive income.Comprehensive income is a new income concept. It is an organic whole whichincludes net income and other comprehensive income items. This new concept doesbetter in accurately reflecting the whole picture of the enterprise’s operation during acertain period of time. So, does comprehensive income defined by our accountingstandards has higher application value than net income in the current accountingpractice? How to modify the provisions of the accounting standards of comprehensiveincome? Current studies in accounting profession of our country start by theoreticalanalysis. This paper empirically studies the value relevance of comprehensive income toprovide data for the usefulness comparison between comprehensive income and netincome and the revision direction of accounting standards.It serves both theoretical andpractical significance.This paper firstly introduces economic income and accounting income which arebased on different subjects, including their definition and characteristics. By comparingthe definition and theoretical basis of net income and comprehensive income, this papershows comprehensive income’s theoretical progressiveness and superiority. Byintroducing relative theoretical foundation, this paper shows the possibility toempirically test the value of comprehensive income information. By analyzing thesignificance of introducing comprehensive income and its application difficulties, thispaper shows the necessity to empirically test the value of comprehensive income information. In the empirical analysis, this paper selects sample data from the ShanghaiA-share listed companies during2011-2013, building models to test and analyze thevalue relevance of net profit, comprehensive income information from two angles:relativity and increment. The main conclusions are as follows:(1) Net income showsvalue relevance from both angles.(2) From the relative angle, comprehensive income’svalue relevance is lower than net income.(3) From the incremental angle, adding othercomprehensive income information in the income statement shows no incremental valuerelevance and does no good to the interpretation of the stock price or its yield.In order to control some of the important factors beside the explanatory variables,this paper introduces three control variables: company size, the proportion of thecirculation stock to the total share and debt-to-assets ratio. The results show that there isa significant inverse correlation between company size, the proportion of the circulationstock to the total share and the stock price or its yield, while the correlation between thedebt-to-assets ratio and the stock price or yield is not significant.