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Is Comprehensive Income Value Relevant and Does Location Matter? A European Study

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  • Alessandro Mechelli
  • Riccardo Cimini

Abstract

This paper investigates the relative and the incremental value relevance of Comprehensive Income (CI) and Other Comprehensive Income (OCI) across European countries after the mandatory adoption of the International Accounting Standards Board (IASB) standards. This topic, which has already been analysed in other countries, drew the attention of academics and practitioners in Europe after the issuance of International Accounting Standard 1-revised, which requires entities to prepare a statement of comprehensive income (SOCI) in which both CI and OCI components are disclosed. The investigation of the value relevance of accounting amounts is important in order to evaluate their usefulness, because it highlights whether they reflect information investors use in making economic decisions. This study analyses a sample made of all the European listed entities of countries belonging to the EU at the date of issuance of EU Regulation 1606/2002. Our analysis involves a period from 2006 to 2011 and includes 16,511 firm-year observations. Our results show that Net Income (NI) is more value-relevant than CI, even though the total OCI of the period adds relevant information to those already disclosed in other accounting items such as NI and Book Value. In this regard, we found that the coefficient of the total OCI of the period is lower than that of NI, a result to be expected because of its transitory nature. Our findings also suggest that the requirement to issue an SOCI has not produced a significant change in the value relevance of both CI and the total OCI of the period leading to the conclusion that its location does not affect the value relevance of these items. Finally, we found significant differences in the incremental value relevance of the total OCI of the period across European countries, differences that seem to be caused by the countries' characteristics, such as the source of funds (credit/equity and insider/outsider) and the legal systems.

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  • Alessandro Mechelli & Riccardo Cimini, 2014. "Is Comprehensive Income Value Relevant and Does Location Matter? A European Study," Accounting in Europe, Taylor & Francis Journals, vol. 11(1), pages 59-87, June.
    • Handle: RePEc:taf:acceur:v:11:y:2014:i:1:p:59-87
    DOI: 10.1080/17449480.2014.890777
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    10. Adul Aziz Saymeh & Ayman Mansour Khalaf ALkhazaleh* & Eman Marwan Musallam, 2019. "The Impact of Other Comprehensive Income Items on Financial Performance: Case of Jordanian Commercial Banks," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(4), pages 881-893, 04-2019.
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    12. Veltri, Stefania & Ferraro, Olga, 2018. "Does other comprehensive income matter in credit-oriented systems? Analyzing the Italian context," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 30(C), pages 18-31.
    13. Yuni Pristiwati Noer Widianingsih & Doddy Setiawan, 2023. "The tenure of directors and value relevance of accounting information," SN Business & Economics, Springer, vol. 3(6), pages 1-18, June.
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    15. Carien van Mourik & Yuko Katsuo Asami, 2018. "Articulation, Profit or Loss and OCI in the IASB Conceptual Framework: Different Shades of Clean (or Dirty) Surplus," Accounting in Europe, Taylor & Francis Journals, vol. 15(2), pages 167-192, May.
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