Other Comprehensive Income, Its Components, and Analysts’ Forecasts

This paper examines how analysts incorporate other comprehensive income (OCI) and its components into their earnings forecasts. We first document that analysts’ one-year-ahead earnings forecasts are associated with OCI and OCI components having predictive ability; this suggests analysts (at least partially) incorporate this information into their forecasting. We then show that analysts are neither complete nor timely in incorporating OCI information into their forecasts, as several OCI components remain associated with analysts’ forecast errors. Further, we document that higher uncertainty in firm performance exacerbates analysts’ underreaction, evidencing a friction to full incorporation of OCI-related information. Finally, as evidence of where and when analysts derive OCI-related information, we document that analysts’ forecast revisions correlate with the release of firms’ 10-Ks and early 10-Qs (i.e., quarters one and two but not three).

Keywords: other comprehensive income; analyst forecasts; uncertainty

JEL Classification: G38, M41, M48

Suggested Citation: Suggested Citation

Anderson, Joshua D. and Cao, Yiting and Riedl, Edward J. and Song, Scarlett, Other Comprehensive Income, Its Components, and Analysts’ Forecasts (September 24, 2021). Review of Accounting Studies, Forthcoming., Boston University Questrom School of Business Research Paper No. 3936165, Available at SSRN: https://ssrn.com/abstract=3936165