Decision Usefulness Of Other Comprehensive Income For Banks

In March 2018,the IASB’s latest Financial Reporting Conceptual Framework explained when income and expenses are classified into other comprehensive income.The principle is to make the income statement provide more relevant information or more accurately reflect the situation,highlighting the decision usefulness of other comprehensive income.Studies on decision usefulness of other comprehensive income are mostly from the perspective of stock investors,and there is less research on the decision usefulness of other comprehensive income for debt contracts(that is,whether the disclosure of other comprehensive income is beneficial to creditors,decision-making).The financing methods of Chinese enterprises are mainly bank loans in debt financing.At present,they face the problems of high leverage and private enterprises’ financing difficulties.To solve the above problems,it is necessary to clarify the financial indicators which bank loans pay attention to.Based on the above background,this paper studies the decision usefulness of other comprehensive income for banks.This paper proposes two possible paths for the reasons why other comprehensive income has decision usefulness for banks.First,the bank will use the information of the external environment of the enterprise included in other comprehensive income to estimate future cash flow.Second,the management may conduct earnings management,thus comprehensive income is more objective than net income.The empirical study proves the first path by having decision usefulness for banks only with the components of other comprehensive income related to the cash flow that may be used to repay the loan in the future.The bank’s attention on net income and comprehensive income is of no difference when the management does earnings management which denies the second path.This paper also finds that volatility of other comprehensive income reflects the credit risk of the enterprise,and the bank will adjust the term of the loan accordingly and require the enterprise to provide guarantee.When the total amount of other comprehensive income is negative,decision usefulness for banks is significantly stronger than the case when other comprehensive income is positive.At present,although there are a small number of empirical studies on the decision usefulness of other comprehensive income for banks in China,the conclusions are inconsistent,the selected sample period is short,and before 2014 when China’s Enterprise Accounting Standards required the disclosure of other comprehensive income components in the income statement.This paper takes the data of China’s A-share non-financial listed companies from 2009 to 2017 as the research sample,explains the reasons why the other comprehensive income has the decision usefulness for banks from two ways,and tests its components,positive and negative signs,and volatility.This study has deepened and expanded previous research.