Do note disclosures influence value relevance more after financial statement placement becomes more uniformly prominent? Evidence from ASU 2011-05

50 Pages Posted: 20 Jan 2021 Last revised: 3 Feb 2024

See all articles by Matthew C. Cedergren

Matthew C. Cedergren

Santa Clara University

Changling Chen

University of Waterloo - School of Accounting and Finance

Kai Chen

Wilfrid Laurier University - School of Business & Economics

Victor Xiaoqi Wang

California State University, Long Beach - College of Business Administration

Date Written: December 22, 2022

Abstract

We examine whether note disclosures play an enhanced role in value relevance when financial statement line item placement becomes more uniformly prominent. We consider ASU 2011-05, which prohibited reporting other comprehensive income (“OCI”) in the statement of changes in stockholders’ equity. We document that firms changing OCI placement exhibited incremental positive changes in OCI value relevance, in line with the FASB’s goal of raising OCI prominence. This finding resolves the puzzling findings of early studies, which documented an incremental decrease in OCI value relevance. We then find that this effect is enhanced when OCI-related note disclosures are more specific, numeric, readable, or shorter in length. Collectively, our findings suggest that financial statement placement and note disclosure characteristics interact in a manner such that when financial statement line items influence valuation to a greater extent via prominent placement, qualitative characteristics of accompanying note disclosures assume this role more prominently as well.

Keywords: Other comprehensive income, financial statement placement, value relevance, note disclosure, textual analysis

JEL Classification: M41, G14

Suggested Citation

Cedergren, Matthew C. and Chen, Changling and Chen, Kai and Wang, Victor Xiaoqi, Do note disclosures influence value relevance more after financial statement placement becomes more uniformly prominent? Evidence from ASU 2011-05 (December 22, 2022). Available at SSRN: https://ssrn.com/abstract=3766529 or http://dx.doi.org/10.2139/ssrn.3766529

Matthew C. Cedergren

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Changling Chen (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Kai Chen

Wilfrid Laurier University - School of Business & Economics ( email )

75 University Avenue West
Waterloo, Ontario N2L 3C5
Canada

Victor Xiaoqi Wang

California State University, Long Beach - College of Business Administration ( email )

1250 Bellflower Blvd.
Long Beach, CA 90840
United States

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