Volatility Of Comprehensive Income Research Articles

Does the Reporting Location Moderate the Impact of Comprehensive Income Volatility on Equity Valuation?

Does the Reporting Location Moderate the Impact of Comprehensive Income Volatility on Equity Valuation?

The Impact of Other Comprehensive Income Volatility, Research and Development Investment, and Earnings Management on Cost of Capital: The Moderating Role of Agency Cost

The Impact of Other Comprehensive Income Volatility, Research and Development Investment, and Earnings Management on Cost of Capital: The Moderating Role of Agency Cost

Komponen-Komponen Other Comprehensive Income dan Relevansi Risiko Comprehensive Income

This study aims to examine the risk relevance net income, comprehensive income, and component-competent other comprehensive income. Specifically, this study investigates the risk relevance of net income volatility, comprehensive income volatility, and component-component other comprehensive income volatility on stock return volatility. The study population was finance and banking companies listed in Indonesia Stock Exchange period 2013-2017. Samples are selected with purposive sampling method. This study employed a quantitative method with simple linear regression because for variable tested had a number of different samples. The result of this research showed the risk relevance net income and comprehensive income can not be proven statistically. But of the five component of OCI only volatility change in the fair value of a financial instrument in a cash flow hedge are shown to have a significant positive effect on volatility stock return.

기타포괄손익의 변동성이 신용등급과 차입이자율에 미치는 영향

[연구목적] 본 연구의 목적은 기타포괄손익의 변동성이 전통적인 당기순이익에 추가적으로 채권자 및 신용평가기관에 유용한 정보로 활용되고 있는지를 분석하는 것이다. 이를 위해 기타 포괄손익의 변동성이 신용등급 및 차입이자율에 미치는 영향을 분석한다. [연구방법] 본 연구의 표본은 2013년부터 2018년까지 코스피시장과 코스닥시장에 상장된 12월 결산법인 중에서 비금융업에 해당하는 6,835 기업－년도를 대상으로 하며, 회귀분석(OLS) 및 순서형 로짓 모형(Ordered Logit Model)을 이용하여 분석을 수행한다. [연구결과] 본 연구의 결과는 다음과 같다. 첫째, 기타포괄손익의 변동성이 클수록 신용등급은 낮아지는 것으로 나타났다. 이는 신용평가기관에서 기업의 신용위험을 평가할 때 기타포괄손익의 변동성을 고려하고 있음을 의미한다. 둘째, 기타포괄손익의 변동성이 클수록 차입이자율은 높아지는 것으로 나타났다. 이는 기타포괄손익의 변동성이 클수록 높은 채무불이행 위험으로 인하여 높은 이자율을 부담하는 것으로 이해된다. 이러한 결과는 기타포괄손익의 변동성이 채권자 및 신용평가기관에서 유용한 정보로 활용되고 있음을 의미한다. [정책적 시사점] 본 연구의 결과는 기타포괄손익 정보의 중요성을 강조하고 있으므로 기업입장에서는 기타포괄손익과 관련된 정보를 충실히 공시하고, 세심한 주의를 기울여야 할 것으로 판단되며, 감사인 및 감독기관에서도 이를 위해 노력을 경주해야 할 것으로 판단된다.

Does reporting position affect the pricing of the volatility of comprehensive income?

AbstractThe FASB changed the reporting policy for comprehensive income (CI) by issuing ASU No. 2011‐05, which requires CI be reported in performance statements (i.e., either a single income statement with net income or a separate statement of CI following the income statement) rather than the previously allowed equity statements. We examine whether the change in reporting position of CI led to higher market pricing of CI volatility incremental to NI volatility (“incremental CI volatility”), as measured by the price‐earnings relationship. We find that the market pricing of incremental CI volatility increased from the pre‐ to the post‐ASU period for non‐financial firms forced to change the reporting position of CI from equity to performance statements. The increase is more prominent for firms that switched to the income statement than for firms that switched to a separate statement of CI. Further, we find that the increased market pricing of incremental CI volatility translates into lower valuation weights on other comprehensive income.

RISK RELEVANCE OF COMPREHENSIVE INCOME: EVIDENCE FROM NON-FINANCIAL INDONESIA COMPANIES

Purpose of the study: This study aims to examine the effects of net income volatility, other comprehensive income volatility, and comprehensive income volatility on stock return volatility.
 Methodology: This study employed a quantitative method with multiple linear regression. The sample is all non-financial companies listed on the Indonesia Stock Exchange from 2012 to 2017. Data used in this study are panel data sourced from www.idx.co.id and www.finance.yahoo.com. The sample selection in this study used a purposive sampling method with a total sample of 246 observations.
 Results: This study suggests that net income volatility is not associated with stock return volatility. However, other income volatility and comprehensive income volatility are positively associated with stock return volatility.
 Implications: Future studies can employ data from other developing country companies and developed countries to be able to compare the results of this study. Based on the result findings, the existing and potential investors must improve their ability and understanding of IFRS-based financial accounting standards. The Accounting Standard Board, especially in Indonesia, is expected to be able to improve the rules of financial accounting standards as well as the access to the availability of financial accounting standards for financial statements users, primarily related to the disclosure policies.
 Novelty: This study calculates risk-relevant, which is different from the previous studies, namely annual stock return volatility and annual comprehensive income components volatility. Annual stock return volatility is calculated based on the standard deviation of monthly stock return volatility, which is multiplied by √12. Besides, the annual comprehensive income components volatility is generated from the standard deviation of comprehensive income components generated every three months divided by the market value of equity at the beginning of the period, and multiplied by √4.

Does Other Comprehensive Income Volatility Influence Credit Risk and the Cost of Debt?

ABSTRACTWe examine the usefulness of other comprehensive income (OCI) to debt investors in nonfinancial companies. Motivated by Merton's (1974) real options framework, we construct a measure of incremental OCI volatility, designed to capture the effect of OCI on overall firm asset volatility, which is a primary driver of credit risk in Merton's (1974) model. We find that the volatility of incremental OCI influences the likelihood of default, credit ratings, and the cost of debt. Overall, our evidence suggests that creditors use information from OCI in their assessment of firm credit risk and in pricing debt contracts.

The role of derivative instruments on risk relevance from emerging market non-financial companies

This study aims to investigate the effect of net income volatility, other comprehensive income volatility, and comprehensive income volatility on idiosyncratic volatility. Also, this study includes derivative transactions as moderation variable in testing the equation model. The hypothesis test employed multiple linear regression. The sample in this study is all non-financial companies listed on the Indonesia Stock Exchange from 2012 to 2017. Data used in this study are panel data sourced from www.idx.co.id and www.finance.yahoo.com. The sample selection in this study used a purposive sampling method with a total sample of 246 observations. The results of this study indicate that comprehensive income volatility, net income volatility, and other comprehensive income volatility are not associated with idiosyncratic volatility. Based on the test results suggest that the interaction between derivative transactions and comprehensive income volatility, net income volatility, as well as other comprehensive income volatility, have a positive effect on idiosyncratic volatility.

The volatility of comprehensive income and its association with market risk

AbstractFinancial statement preparers claim that the ‘excess’ volatility of comprehensive income (CI) confuses financial statement users. We examine the volatility and risk relevance of CI, relative to net income, for a sample of 92 New Zealand nonfinancial firms for the period 2003–2010. The results show that CI is more volatile than net income. However, the volatility of CI incremental to net income is not related to market risk. Furthermore, the incremental volatility of CI does not modify the pricing of net income. These results hold when asset revaluations are excluded from other CI.

A framework for assessing comprehensive income risk exposure over varying time horizons

This paper develops a novel, intertemporal approach to assessing comprehensive income risk exposure. While a large body of accounting and policy literature focuses on quality and reliability attributes, the present study employs the premise that fair value and comprehensive income are perfectly measured at all times. In this framework, the context-sensitive impacts of comprehensive income volatility stem from the structure and dynamics of the value generation process rather than variations in measurement quality. These impacts occur concurrently with measurement related effects, but are treated as conceptually distinct. The results illustrate how factors such as risk horizon, trading frequency, and portfolio composition can affect the severity of risk exposure over time. Applied to patterns of unrealized fair-value changes in US bank available-for-sale portfolios, the model significantly improves on the most widely accepted convention for multiperiod risk aggregation (the so-called square-root-of-time or “sqrt(t)” rule). The proposed approach has direct application to value-at-risk and stress-test methods estimates that use horizon-dependent volatilities as inputs. From a financial reporting standpoint, the proposed framework affirms the utility of the “mixed measurement” accounting model and supports multifaceted or “dual presentation” approaches to financial statements.

Volatility and risk relevance of comprehensive income

Motivated by concerns that the volatility of comprehensive income leads to the perception of increased risk we investigate the volatility and risk relevance of comprehensive income relative to net income for a sample of non-financial firms over the period 2005–2010. We find that comprehensive income is more volatile than net income and that comprehensive income is associated with market-based measures of risk (volatility of stock returns and beta). However, the volatility of comprehensive income incremental to net income is not associated with market risk and is not priced. These results have important implications for the FASB in deciding whether to report comprehensive income in a single statement of performance.

Risk Relevance of Comprehensive Income

We examine the volatility and risk relevance of three income measures: net income, comprehensive income, and comprehensive income adjusted for asset revaluations for a sample of 79 New Zealand non-financial firms from 2003-2008. Comprehensive income is more volatile than net income and adjusted comprehensive income. There is a strong positive correlation between the three income volatility measures and market risk. However, the volatility of comprehensive income incremental to net income is not related to market risk. Furthermore, the incremental volatility of comprehensive income does not modify the pricing of net income. The results have policy implications for the IASB.

Volatility and Risk-Relevance of Comprehensive Income

In this paper, we investigate the volatility and risk-relevance of the standard deviation of two reported income measures; net income and comprehensive income for a sample of U.S non-financial firms over the period 2005-2010. We find that comprehensive income is more volatile than net income. We also find a positive correlation of the two income-volatility measures with volatility of stock returns and beta. Moreover, the incremental volatility of comprehensive income does not provide market-risk relevant information beyond net income. Further, the incremental effect of the volatility of comprehensive income is not priced beyond the volatility of net income. Alternatively, the incremental volatility of net income is priced beyond the volatility of comprehensive income. We use reported figures for all the components of other comprehensive income and comprehensive income. Our results support the claim that comprehensive income is more volatile than net income and may not be a better proxy for firm’s performance.

Risk-Relevance of Fair-Value Income Measures for Commercial Banks

We investigate the risk relevance of the standard deviation of three performance measures: net income, comprehensive income, and a constructed measure of full-fair-value income for a sample of 202 U.S. commercial banks from 1996 to 2004. We find that, for the average sample bank, the volatility of full-fair-value income is more than three times that of comprehensive income and more than five times that of net income. We find that the incremental volatility in full-fair-value income (beyond the volatility of net income and comprehensive income) is positively related to marketmodel beta, the standard deviation in stock returns, and long-term interest-rate beta. Further, we predict and find that the incremental volatility in full-fair-value income (1) negatively moderates the relation between abnormal earnings and banks' share prices and (2) positively affects the expected return implicit in bank share prices. Our findings suggest full-fair-value income volatility reflects elements of risk that are not captured by volatility in net income or comprehensive income, and relates more closely to capital-market pricing of that risk than either net-income volatility or comprehensiveincome volatility.

Effects of Comprehensive-Income Characteristics on Nonprofessional Investors' Judgments: The Role of Financial-Statement Presentation Format

Statement of Financial Accounting Standards (SFAS) No. 130 requires companies to report comprehensive income in a primary financial statement, but allows its presentation in either a statement of comprehensive income or a statement of stockholders' equity (Financial Accounting Standards Board [FASB] 1997). In an experiment, we examine whether and how alternative presentation formats affect nonprofessional investors' processing of comprehensive-income information, specifically, information disclosing the volatility of unrealized gains on available-for-sale marketable securities. The results show that nonprofessional investors' judgments of corporate and management performance reflect the volatility of comprehensive income only when it is presented in a statement of comprehensive income. We provide evidence consistent with our psychology-based framework that these findings occur because format affects how nonprofessional investors weight comprehensive-income information and not whether they acquire this information or how they evaluate it.

Effects of Comprehensive-Income Characteristics on Nonprofessional Investors' Judgments: The Role of Financial-Statement Format

Statement of Financial Accounting Standards No. 130 requires companies to report comprehensive income in a primary financial statement, but allows its presentation in either a statement of comprehensive income or a statement of stockholders' equity. In an experiment, we examine whether and how alternative presentation formats affect nonprofessional investors' processing of comprehensive-income information, specifically, information disclosing the volatility of unrealized gains on available-for-sale securities. The results show that investors' judgments of corporate and management performance reflect the volatility of comprehensive income only when it is presented in a statement of comprehensive income. We provide evidence consistent with our psychology-based framework that these findings occur because format affects how nonprofessional investors weight comprehensive-income information and not whether they acquire this information or how they evaluate it. Key Words: Comprehensive income; Nonprofessional investors; Presentation format; Volatility