Does reporting position affect the pricing of the volatility of comprehensive income?
Department
School of Accountancy
Document Type
Article
Publication Date
10-1-2020
Abstract
© 2020 John Wiley & Sons Ltd The FASB changed the reporting policy for comprehensive income (CI) by issuing ASU No. 2011-05, which requires CI be reported in performance statements (i.e., either a single income statement with net income or a separate statement of CI following the income statement) rather than the previously allowed equity statements. We examine whether the change in reporting position of CI led to higher market pricing of CI volatility incremental to NI volatility (“incremental CI volatility”), as measured by the price-earnings relationship. We find that the market pricing of incremental CI volatility increased from the pre- to the post-ASU period for non-financial firms forced to change the reporting position of CI from equity to performance statements. The increase is more prominent for firms that switched to the income statement than for firms that switched to a separate statement of CI. Further, we find that the increased market pricing of incremental CI volatility translates into lower valuation weights on other comprehensive income.
Journal Title
Journal of Business Finance and Accounting
Journal ISSN
0306686X
Volume
47
Issue
9-10
First Page
1113
Last Page
1150
Digital Object Identifier (DOI)
10.1111/jbfa.12496