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Volatility and risk relevance of comprehensive income

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  • Khan, Shahwali
  • Bradbury, Michael E.

Abstract

Motivated by concerns that the volatility of comprehensive income leads to the perception of increased risk we investigate the volatility and risk relevance of comprehensive income relative to net income for a sample of non-financial firms over the period 2005–2010. We find that comprehensive income is more volatile than net income and that comprehensive income is associated with market-based measures of risk (volatility of stock returns and beta). However, the volatility of comprehensive income incremental to net income is not associated with market risk and is not priced. These results have important implications for the FASB in deciding whether to report comprehensive income in a single statement of performance.

Suggested Citation

  • Khan, Shahwali & Bradbury, Michael E., 2014. "Volatility and risk relevance of comprehensive income," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(1), pages 76-85.
    • Handle: RePEc:eee:jocaae:v:10:y:2014:i:1:p:76-85
    DOI: 10.1016/j.jcae.2014.01.001
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    References listed on IDEAS

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    1. Barth, Mary E. & Landsman, Wayne R. & Wahlen, James M., 1995. "Fair value accounting: Effects on banks' earnings volatility, regulatory capital, and value of contractual cash flows," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 577-605, June.
    2. Hirst, DE & Hopkins, PE, 1998. "Comprehensive income reporting and analysts' valuation judgments," Journal of Accounting Research, Wiley Blackwell, vol. 36, pages 47-75.
    3. Bowman, Robert G, 1979. "The Theoretical Relationship between Systematic Risk and Financial (Accounting) Variables," Journal of Finance, American Finance Association, vol. 34(3), pages 617-630, June.
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    Cited by:

    1. HeeJin Park, 2018. "Market Reaction to Other Comprehensive Income," Sustainability, MDPI, vol. 10(6), pages 1-14, June.
    2. Murad Harasheh & Federica Doni & Maria Vittoria Franceschelli & Andrea Amaduzzi, 2021. "The value relevance of Other Comprehensive Income: Extensive evidence from Europe," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3835-3851, July.
    3. Federica Doni & Silvia Rossetti & Roberto Verona, 2017. "Performance Reporting Choices after the Adoption of IAS 1 Revised: Comparative Evidence from Europe and the USA," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 558-574.
    4. Joonhyun Kim, 2018. "Volatilities of Book Income and Taxable Income and Their Risk Relevance," Social Sciences, MDPI, vol. 7(11), pages 1-14, October.
    5. Inês Pinto & Ana Isabel Morais, 2022. "Classification of Equity Instruments under IFRS 9: Determinants and Consequences," Australian Accounting Review, CPA Australia, vol. 32(4), pages 411-426, December.
    6. Yiting Cao & Qi (Flora) Dong, 2020. "Does reporting position affect the pricing of the volatility of comprehensive income?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1113-1150, October.
    7. Chiu, She-Chih & Lin, Hsuan-Chu & Chien, Chin-Chen & Liang, Chia-Chen, 2022. "Does Form 20-F reconciliation elimination for IFRS filers affect the risk forecasting ability of accounting numbers?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    8. Philippe Touron, 2016. "Mesures de la performance et les autres éléments du résultat global (OCI) : état de l'art," Post-Print hal-01902529, HAL.
    9. Shahwali Khan & Michael E. Bradbury & Steven Cahan, 2016. "The volatility of comprehensive income and its association with market risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(3), pages 727-748, September.
    10. Stepanova, A. & Podukhovich, D., 2023. "CEO decision-making horizon and R&D investments. Evidence from Russia," Journal of the New Economic Association, New Economic Association, vol. 59(2), pages 85-118.
    11. Abderrahmane Djaballah & Anne Fortin, 2021. "Value Relevance of Comprehensive Income for the Canadian Market," Accounting Perspectives, John Wiley & Sons, vol. 20(1), pages 49-77, March.
    12. Mark Wallis, 2023. "Why Do Analysts use a Zero Forecast for Other Comprehensive Income?," Abacus, Accounting Foundation, University of Sydney, vol. 59(4), pages 1074-1115, December.
    13. Baban Eulaiwi & Ahmed Al‐Hadi & Lien Duong & Keira Clark & Grantley Taylor & Brian Perrin, 2022. "Audit pricing and corporate whistleblower governance: evidence from Australian financial firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2339-2384, June.
    14. Claudia Mihaela Rapan & Viorel-Costin Banta & Andreea Serban & Andreia Manea, 2022. "Analysis of the Net Result and the Comprehensive Income: An Empirical Study of the Listed Companies on the Bucharest Stock Exchange," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 76-81, June.

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