Other Comprehensive Income: Do Nonprofessional Investors Value It as Much as Net Income?

Ning Du () and Ray Whittington
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Ning Du: School of Accountancy and Management Information Systems, DePaul University, DePaul Center, Chicago, IL 60604, USA
Ray Whittington: School of Accountancy and Management Information Systems, DePaul University, DePaul Center, Chicago, IL 60604, USA

JRFM, 2024, vol. 17, issue 11, 1-17

Abstract: This study examines how investors incorporate unrealized gains or losses reported in Other Comprehensive Income (OCI) into their investment judgments. Since unrealized gains or losses can be presented in either OCI or net income—gains from trading securities are included in net income, while those from available-for-sale securities are reported in OCI (ASC 320 and ASC 851)—it raises the question of whether OCI items are perceived as equally significant as net income items. To explore this, we conducted a 2 × 2 experiment with 240 individual investors, manipulating the presentation of unrealized gains or losses in either net income or OCI. Our findings reveal that unrealized gains are valued significantly lower when presented in OCI compared to net income, indicating that investors see OCI-reported gains as less relevant. However, for unrealized losses, the incorporation degree remained consistent across both presentations, reflecting a general aversion to unrealized losses regardless of how they are reported.

Keywords: net income; other Comprehensive Income; categorization; unrealized gains or losses; assimilation (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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