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

Posted: 1 Jun 2006

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

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. Our results demonstrate 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 disclosure quality, are more likely to report comprehensive income in a statement of equity. Apparently, these insurers face the highest cost of transparency. We do not find a relation between the reporting decision and the volatility of comprehensive income relative to the volatility of net income. Our findings that insurers' comprehensive income reporting choices are a reflection of their proclivity toward cherry picking as well as their level of disclosure 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.

Keywords: comprehensive income, accounting choice, property-liability insurers, earnings management

JEL Classification: M41, M43, M44, M45, G22

Suggested Citation

Lee, Yen-Jung and Petroni, Kathy Ruby and Shen, Min, Cherry Picking, Disclosure Quality, and Comprehensive Income Reporting Choices: The Case of Property-Liability Insurers. Contemporary Accounting Research, Autumn 2006. Available at SSRN: https://ssrn.com/abstract=905049

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)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,582
PlumX Metrics