Comprehensive Income: Who's Afraid of Performance Reporting?

47 Pages Posted: 15 Sep 2006

See all articles by Linda Smith Bamber

Linda Smith Bamber

University of Georgia - J.M. Tull School of Accounting

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems

Kathy R. Petroni

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

Isabel Yanyan Wang

Michigan State University

Multiple version iconThere are 2 versions of this paper

Date Written: December 18, 2007

Abstract

Firms can report comprehensive income in either an income-statement-like performance statement or the statement of equity. Traditional theories of contracting incentives cannot explain this reporting location choice that only affects where comprehensive income data appear, because the contractible values of net income, other comprehensive income items, and comprehensive income are exactly the same regardless of the location where the firm reports comprehensive income. Drawing on theory, analysis of comment letters, and results of survey-based and behavioral research, we identify two factors – equity-based incentives and concerns over job security – that help explain why most firms do not follow policymakers’ preference to report comprehensive income in a performance statement. Our empirical evidence on a broad cross-section of firms shows that managers with stronger equity-based incentives and less job security are significantly less likely to use performance reporting. Overall, our study suggests that even though the reporting location choice is inconsequential in a traditional rational markets view, managers act as if they believe that comprehensive income reporting location matters.

Keywords: Accounting choice, Comprehensive income, Executive compensation, Managerial job security, Disclosure

JEL Classification: G34, J33, M12, M41, M43, M44, M52

Suggested Citation

Bamber, Linda Smith and Jiang, John (Xuefeng) and Petroni, Kathy Ruby and Wang, Isabel, Comprehensive Income: Who's Afraid of Performance Reporting? (December 18, 2007). Forthcoming in The Accounting Review. Available at SSRN: https://ssrn.com/abstract=930699 or http://dx.doi.org/10.2139/ssrn.930699

Linda Smith Bamber

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-3501 (Phone)
706-542-3630 (Fax)

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems ( email )

252 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://www.msu.edu/~jiangj/

Kathy Ruby Petroni

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)

Isabel Wang (Contact Author)

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

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