Effects of Comprehensive-Income Characteristics on Nonprofessional Investors' Judgments: The Role of Financial-Statement Format

48 Pages Posted: 27 Jun 2000

See all articles by Laureen A. Maines

Laureen A. Maines

Indiana University - Kelley School of Business - Department of Accounting; PricewaterhouseCoopers

Linda S. McDaniel

University of Kentucky - Von Allmen School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: December 1999

Abstract

Statement of Financial Accounting Standards No. 130 requires companies to report comprehensive income in a primary financial statement, but allows its presentation in either a statement of comprehensive income or a statement of stockholders' equity. In an experiment, we examine whether and how alternative presentation formats affect nonprofessional investors' processing of comprehensive-income information, specifically, information disclosing the volatility of unrealized gains on available-for-sale securities. The results show that investors' judgments of corporate and management performance reflect the volatility of comprehensive income only when it is presented in a statement of comprehensive income. We provide evidence consistent with our psychology-based framework that these findings occur because format affects how nonprofessional investors weight comprehensive-income information and not whether they acquire this information or how they evaluate it.

Key Words: Comprehensive income; Nonprofessional investors; Presentation format; Volatility

JEL Classification: M41, M44

Suggested Citation

Maines, Laureen A. and McDaniel, Linda S., Effects of Comprehensive-Income Characteristics on Nonprofessional Investors' Judgments: The Role of Financial-Statement Format (December 1999). Available at SSRN: https://ssrn.com/abstract=200774 or http://dx.doi.org/10.2139/ssrn.200774

Laureen A. Maines (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2611 (Phone)
812-855-4985 (Fax)

PricewaterhouseCoopers

1301 Avenue of the Americas
New York, NY 10019
United States

Linda S. McDaniel

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

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