Abstract
This study investigates the influence of corporate governance mechanisms on the valuation of other comprehensive income in Nigeria. The sample of this study consists of 327 firm-year observations comprising of 117 firms listed on the Nigerian Stock Exchange for the period of 2010 to 2014. The findings reveal that there is a positive influence of corporate governance mechanism on the investors’ pricing of other comprehensive income. Findings show that for firms with weak governance mechanisms, other comprehensive income is value relevant, but is more significantly priced for strong governance firms. This study finds a similar result when other comprehensive income interact with individual elements of corporate governance factor. Therefore, corporate governance mitigates reliability concerns associated with fair value earnings, agency cost will be minimised and investors are more likely to view other comprehensive income as more value relevant. It is therefore recommended that reporting entities should pursue best corporate governance practices in order to enhance investors’ confidence in the reliability of other comprehensive income.
Highlights
An old and unresolved challenge facing standardsetters and users of accounting information centres is the choice of a more appropriate method of assessing the periodic financial position and performance (Kanagaretnam, Mathieu, & Shehata, 2009)
This study investigated whether investors placed different weight on other comprehensive income based on the strength of the corporate governance mechanism
Based on the data from firms listed on the Nigerian Stock Exchange (NSE) market, the test of the impact of corporate governance mechanism on investors’ pricing of other comprehensive income was consistent with our prediction
Summary
An old and unresolved challenge facing standardsetters and users of accounting information centres is the choice of a more appropriate method of assessing the periodic financial position and performance (Kanagaretnam, Mathieu, & Shehata, 2009). By presenting all cash flow changes resulting for both fair value changes in balance sheet items and cash flows from operating performance, users of financial statements can distinguish between value creation and value distribution (Chambers, Linsmeier, Shakespeare, & Sougiannis, 2007; Kanagaretnam et al, 2009; Mechelli & Cimini, 2014; Firescu, 2015) This is contrary to the current operating performance approach where temporary changes (dirty surplus flows) arising from non-core operations bypass the income statement and are reported directly in the balance sheet under the owners’ equity section (Kanagaretnam et al, 2009; Lee & Park, 2013). Considering the comprehensiveness of the all inclusive approach to measure financial performance, the CI-type statement displays all relevant components of income (Hirst & Hopkins, 1998; Kanagaretnam et al, 2009; Lee & Park, 2013; Firescu, 2015)
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