Value Relevance of Summary Accounting Income Measures: Evidence from Major European Capital Markets

Jean-Francois Casta (), Olivier Ramond () and Stephen Lin ()
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Olivier Ramond: DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Stephen Lin: FIU - Florida International University [Miami]

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Abstract: This study investigates the extent to which three key summary accounting income figures, namely operating income (OPI), net income (NI) and comprehensive income (CI), provide value-relevant information to investors in major EU capital markets. Using a large sample over the pre-IAS-compliance period (1992-2004), we find that all these three figures are statistically associated with share returns in any of the countries under analysis although disparities in the degree of 'usefulness' appear across samples. Our main results are then threefold. We first provide evidence that CI is less value-relevant than both NI and OPI in all the sample countries. Second, our results show that aggregate OCI is value-relevant and generally provides incremental price-relevant information beyond NI. This finding is rather different from the existing US literature that suggests OCI is usually not value-relevant especially when not separately disclosed in financial statements. Finally, considering early adoption firms, we find that increased transparency on reporting OCI as required by the UK FRS3 and US SFAS130 standards may have warranted a stronger statistical association between share returns and CI. This last finding therefore strongly supports the ideology underlying the IASB/FASB 'Performance Reporting' joint project, and provides evidence supporting Beaver's (1981) psychology-based financial reporting theory.

Keywords: FASB joint project; IASB; FASB joint project.; Value-relevance; comprehensive income; other comprehensive income; summary accounting income; performance reporting (search for similar items in EconPapers)
Date: 2008-05-28
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00681212v1
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Published in La comptabilité, le contrôle et l'audit entre changement et stabilité, AFC, Cergy-Pontoise (2008), May 2008, Cergy-Pontoise, France. pp.Actes on line

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