Value Relevance of Comprehensive Income for the Canadian Market^*

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.

Subsequent measurement of non current assets: The impact of the fair value concept choice on total comprehensive income of listed companies in the Republic of Serbia

“…6 A l e k s a n d r a A r s e n i j e v i ć , D e j a n S p a s i ć Notwithstanding certain weaknesses, it is considered that there is still some "incremental value relevance of OCI" (Djaballah & Fortin, 2021) and that this report can be a useful source of information for decision makers (He & Lin, 2015).…”

Auditors' sensemaking of other comprehensive income through metaphors

“…The macro realm of positivist research typically asks which of net income and comprehensive income provides a better summary measure of firm performance (Barth, 2014;Rees and Shane, 2012). Net income dominates comprehensive income for compensation (Biddle and Choi, 2006) and debt contracting (Li, 2010), and most market-based studies conducted in international (Barton et al, 2010), European (Goncharov and Hodgson, 2011;Mechelli and Cimini, 2014;Veltri and Ferraro, 2018;Wang et al, 2006), North American (Dhaliwal et al, 1999;Djaballah and Fortin, 2021), and Oceanian (Cahan et al, 2000;Kabir and Laswad, 2011) settings document that net income is also more value-relevant relative to comprehensive income. However, the opposite was found in a few North American (Biddle and Choi, 2006;Kanagaretnam et al, 2009) and Oceanian (Khan et al, 2018) settings, and a Japanese study could not find a significant difference in the value relevance of these two performance measures (Kubota et al, 2011).…”

“…Mixed findings are reported for total OCI (Jones and Smith, 2011;Landsman et al, 2011), perhaps because OCI components may have differing implications for future performance (Bratten et al, 2016), pointing to the need for disaggregating OCI items for analysis purposes. The bulk of research consequently assesses the value relevance of specific OCI items, consistently documenting the value relevance of gains and losses on available-for-sale financial assets (Boulland et al, 2019;Badertscher et al, 2014;Bratten et al, 2016;Djaballah and Fortin, 2021;Easton and Xiao-Jun, 2017;Kanagaretnam et al, 2009;Khan et al, 2018;Kubota et al, 2011) and asset revaluations (Khan et al, 2018;Wang et al, 2006). However, mixed findings are reported for the value relevance of items such as foreign currency adjustments (Chambers et al, 2007;Dhaliwal et al, 1999;Djaballah and Fortin, 2021;Khan et al, 2018;Kubota et al, 2011;Pinto, 2005;Soo and Soo, 1994;Wang et al, 2006), pension adjustment (Dhaliwal et al, 1999;Djaballah and Fortin, 2021) and cash flow hedge gains or losses (Bratten et al, 2016;Campbell, 2015;Kanagaretnam et al, 2009;Khan et al, 2018).…”

“…The bulk of research consequently assesses the value relevance of specific OCI items, consistently documenting the value relevance of gains and losses on available-for-sale financial assets (Boulland et al, 2019;Badertscher et al, 2014;Bratten et al, 2016;Djaballah and Fortin, 2021;Easton and Xiao-Jun, 2017;Kanagaretnam et al, 2009;Khan et al, 2018;Kubota et al, 2011) and asset revaluations (Khan et al, 2018;Wang et al, 2006). However, mixed findings are reported for the value relevance of items such as foreign currency adjustments (Chambers et al, 2007;Dhaliwal et al, 1999;Djaballah and Fortin, 2021;Khan et al, 2018;Kubota et al, 2011;Pinto, 2005;Soo and Soo, 1994;Wang et al, 2006), pension adjustment (Dhaliwal et al, 1999;Djaballah and Fortin, 2021) and cash flow hedge gains or losses (Bratten et al, 2016;Campbell, 2015;Kanagaretnam et al, 2009;Khan et al, 2018). These inconsistent results are possibly attributable to country specificities (Mechelli and Cimini, 2014) or to the use of varying methodologies (Black, 2016;Rees and Shane, 2012).…”

“…Therefore, one might question whether actuarial gains and losses belong in OCI on this ground. Such "purification" of net income is also based on auditors' perceptions that financial statement users actually praise a controllable net income, which is also debatable because although the pension adjustment component of OCI has been found value irrelevant by Dhaliwal et al (1999), it has been, conversely, found value relevant by Djaballah and Fortin (2021).…”