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Value-relevance of reporting comprehensive income under international GAAPs: Insights from major European financial markets

Author

Listed:
  • Olivier J. Ramond

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Jean-François Casta

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Stephen W.J. Lin

    (Accounting & Finance department - University of Miami [Coral Gables])

Abstract

Motivated by the recent works by Lev [2001b ; 2004] and Villalonga [2004], and the current debate surrounding the IAS 38 adoption related to reported intangible investment issues, this study investigates whether European firms using national GAAPs exhibit differences while considering the relationship between firm performance and intangible investment. Using a four-EU-country-based (i.e. UK, Germany, France and Spain) sample, we investigate whether intangible accounting numbers in these various settings can be significantly linked, during the period 1993-2003, to the following firm performance triptych: financial, operational and competitive performance. Intangible investment is measured herein by three accounting proxies: the change in goodwill stock [Griliches, 1981], the change in reported intangible assets [Hall, 2000] and R&D expenditures. Our findings bring us towards the following concerns: First, in any stock market under scope, we find clear evidence that while constructing their investment portfolios investors adopt a short-term perspective or "myopic view" by precluding firms from reporting high intangible investments in their financial statements. Secondly, we do not find any evidence that reported intangible investments regardless the local GAAPs underpin a better competitive position inside a specific market. Finally, our results clearly support the idea that Latin accounting frameworks, while opposed to UK settings, ease the relationship between intangibles and the firm operational performance. This last result would suggest that IAS implementation could lead to disconnect progressively operational margins from reported intangibles as their valuations are, under IAS, overall market-oriented.

Suggested Citation

  • Olivier J. Ramond & Jean-François Casta & Stephen W.J. Lin, 2007. "Value-relevance of reporting comprehensive income under international GAAPs: Insights from major European financial markets," Post-Print halshs-00170498, HAL.
    • Handle: RePEc:hal:journl:halshs-00170498
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    Cited by:

    1. Keiichi Kubota & Kazuyuki Suda & Hitoshi Takehara, 2011. "Information Content of Other Comprehensive Income and Net Income: Evidence for Japanese Firms," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 18(2), pages 145-168.
    2. Takashi Obinata, 2008. "Net Income vs. Comprehensive Income -A Reexamination of Attributes, Relevance, and Price Informativeness-," CARF J-Series CARF-J-053, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Mohammad Ali Al Hayek & Abdel-Rahman kh. El-Dalabeeh *, 2019. "The Impact of Comprehensive Income on Owners Equity at the Jordanian Commercial Banks, Analytical Study," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(9), pages 1312-1320, 09-2019.
    4. Schaberl, Philipp D. & Victoravich, Lisa M., 2015. "Reporting location and the value relevance of accounting information: The case of other comprehensive income," Advances in accounting, Elsevier, vol. 31(2), pages 239-246.
    5. 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.
    6. John M. Barrios & Marco Fasan & Daniele Macciocchi, 2013. "CEO turnover, earnings management and value relevance. A theoretical analysis on the Italian context," Working Papers 11, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.

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