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Value Relevance of Comprehensive Income for the Canadian Market

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  • Abderrahmane Djaballah
  • Anne Fortin

Abstract

The value relevance of comprehensive income (CI) compared to net income (NI) remains unresolved. We look at this issue in the Canadian market, using association methods to determine the value relevance of reporting CI and other comprehensive income (OCI) components for stock prices and returns. The sample consists of all the firms in the S&P/TSX Composite Index that prepared their financial statements according to Canadian standards or International Financial Reporting Standards (IFRS) over the 2008–2016 period. Although we find no evidence that CI is more value relevant than NI for stock prices and returns, we note that some OCI components are incrementally value relevant beyond NI for both amounts. In addition, financial services firms differ from other companies in terms of the relationships between some of their OCI components and prices or returns, with such firms even driving some relationships. Relationships between OCI components and prices or returns are also affected when data from the financial crisis period are excluded, with some relationships even changing after IFRS adoption. These results inform Canadian standard setters and financial statement users that OCI components are decision useful for the Canadian market. Pertinence du résultat global pour la valeur des actions sur le marché canadien La pertinence du résultat global (RG) pour la valeur des actions comparativement au résultat net (RN) demeure non résolue. Nous examinons cette question dans le cadre du marché canadien, en utilisant des méthodes d'association pour déterminer la pertinence de la divulgation du RG et des composantes des autres éléments du RG pour le cours des actions et leur rendement. L’échantillon inclut toutes les sociétés de l'indice composé S&P/TSX qui ont préparé leurs états financiers conformément aux normes canadiennes ou aux IFRS pendant la période de 2008 à 2016. Bien que nous n'ayons pas trouvé de données probantes indiquant que la valeur du RG est plus pertinente que celle du RN pour le cours des actions et leur rendement, nous constatons la pertinence additionnelle des composantes des autres éléments du RG au‐delà du RN pour les deux montants. En outre, les sociétés de services financiers sont différentes des autres entreprises en ce qui concerne les relations entre certaines composantes des autres éléments du RG et les cours ou le rendement des actions, ces sociétés allant même jusqu’à être la source de certaines relations dans les régressions sur l'ensemble de l'échantillon. Les relations entre les composantes des autres éléments du RG et les cours ou le rendement des actions sont également altérées quand on exclut les données provenant de la période de la crise financière, certaines relations ayant même changé après l'adoption des IFRS. Ces résultats indiquent aux organismes de normalisation canadiens et aux utilisateurs d’états financiers que les composantes des autres éléments du RG sont utiles à la prise de décision sur le marché canadien.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:accper:v:20:y:2021:i:1:p:49-77
    DOI: 10.1111/1911-3838.12235
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    1. Durocher, Sylvain & Picard, Claire-France & Dugal, Léa, 2024. "Giving sense to and making sense of OCI: When each component makes sense, but the whole does not," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 99(C).
    2. Sushma Vishnani & Nityanand Deva & Dheeraj Misra, 2024. "Value Relevance of Comprehensive Income reported as per IFRS-converged Indian Accounting Standards," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(3), pages 453-472, September.
    3. Wakil, Gulraze & Petruska, Karin A., 2022. "Does mandatory IFRS adoption affect large and small public firms' accounting quality differently? Evidence from Canada," Advances in accounting, Elsevier, vol. 57(C).

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