An Evaluation of Sfas No. 130 Comprehensive Income Disclosures

53 Pages Posted: 11 Jan 2005

See all articles by Dennis J. Chambers

Dennis J. Chambers

Kennesaw State University

Thomas J. Linsmeier

Financial Accounting Standards Board

Catherine Shakespeare

University of Michigan - Stephen M. Ross School of Business

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: December 2006

Abstract

In this study, we provide evidence on the pricing of other comprehensive income (OCI) that differs from most evidence in prior research. Prior archival research has largely concluded that OCI is not priced by investors. In contrast, we provide evidence in the post-SFAS 130 period that OCI is priced on a dollar-for-dollar basis as is predicted by economic theory for transitory income items. We attribute this finding to our use of post-SFAS 130 as-reported measures of OCI rather than pre-SFAS 130 as-if estimates of OCI measures. Furthermore, we document that two components of OCI, foreign currency translation adjustment and unrealized gains/losses on available-for-sale securities, are priced by investors. In the post-SFAS 130 period, we also find that the type of financial statement in which firms report OCI and its components affects pricing, consistent with the conclusions of prior experimental research. However, our evidence suggests that investors pay greater attention to OCI information reported in the statement of changes in equity, rather than in a statement of financial performance. This could be attributed to investors becoming more familiar in the post-SFAS 130 period with the predominant reporting of OCI and its components in the statement of changes in equity. These findings may be relevant to both the Financial Accounting Standards Board and the International Accounting Standards Board, which jointly are undertaking a new project that, in part, is addressing financial statement presentation of OCI items.

Keywords: Comprehensive income, capital markets, SFAS 130, summary measures of performance

JEL Classification: M41, M45, G12

Suggested Citation

Chambers, Dennis J. and Linsmeier, Thomas J. and Shakespeare, Catherine and Sougiannis, Theodore, An Evaluation of Sfas No. 130 Comprehensive Income Disclosures (December 2006). Available at SSRN: https://ssrn.com/abstract=646622 or http://dx.doi.org/10.2139/ssrn.646622

Dennis J. Chambers (Contact Author)

Kennesaw State University ( email )

560 Parliament Garden Way
MD #0402
Kennesaw, GA 30144
United States
470-578-6375 (Phone)
470-578-9018 (Fax)

Thomas J. Linsmeier

Financial Accounting Standards Board ( email )

401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
United States
203-956-5208 (Phone)
203-847-6030 (Fax)

Catherine Shakespeare

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0555 (Phone)
217-244-0902 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,502
Abstract Views
7,291
rank
11,382
PlumX Metrics