Cherry Picking, Financial Reporting Quality, and Comprehensive Income Reporting Choices: The Case of Property-Liability Insurers

43 Pages Posted: 30 Oct 2003

See all articles by Yen-Jung Lee

Yen-Jung Lee

National Taiwan University

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Min Shen

City University of New York - Stan Ross Department of Accountancy

Date Written: April 19, 2004

Abstract

Financial Accounting Standard No. 130 "Reporting Comprehensive Income" encourages enterprises to report comprehensive income on a performance statement rather than on a statement of equity. We investigate the reporting decisions of 82 publicly traded property-liability insurers, which are fairly evenly split in their choice. We find that insurers with a tendency to manage earnings through realized securities' gains and losses (i.e., cherry pickers), as well as insurers with a reputation for poor financial reporting quality, are more likely to bury comprehensive income in a statement of equity. Apparently, these insurers face the highest cost of transparency. Our findings that insurers' comprehensive income reporting choices are a reflection of their proclivity toward cherry picking as well as their level of financial reporting quality should be of interest to standard setters because of the controversy over standard setters' preference for mandating all firms to report comprehensive income in a performance statement.

JEL Classification: M41, M43, M45, G22

Suggested Citation

Lee, Yen-Jung and Petroni, Kathy Ruby and Shen, Min, Cherry Picking, Financial Reporting Quality, and Comprehensive Income Reporting Choices: The Case of Property-Liability Insurers (April 19, 2004). Available at SSRN: https://ssrn.com/abstract=450660 or http://dx.doi.org/10.2139/ssrn.450660

Yen-Jung Lee

National Taiwan University ( email )

Department of Accounting
No.1, Roosevelt Road, Sec. 4
Taipei 10617
Taiwan
33661110 (Phone)

Kathy Ruby Petroni (Contact Author)

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

Min Shen

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3230 (Phone)

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