نوسانات و رابطه ریسک سود جامع

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.

The reporting of comprehensive income in a single statement of performance is a controversial issue. The Exposure Draft on Reporting Comprehensive Income ( FASB, 1996) requires a clear display of comprehensive income and its components in a statement of performance. Despite this preference, SFAS 130, Reporting Comprehensive Income, allows the option of a single or multiple statement of performance reporting. Opponents of a single statement presentation argue that the inclusion of other comprehensive income items along with core business results will confuse users of financial statements and will lead to significant misinterpretation of an entity’s performance. The potential misinterpretation of comprehensive income is related to volatility and the perception of increased risk. Prior research on the volatility of comprehensive income examines fair value accounting in the banking industry (e.g., Barth, 1994, Barth et al., 1996 and Hodder et al., 2006). However, there is little evidence on the volatility of comprehensive income and its consequences for non-financial firms. The objective of this paper is to inform the comprehensive income reporting debate, by examining the risk relevance of the volatility of comprehensive income relative to the volatility of net income. Three specific research questions are addressed. First, is comprehensive income more volatile than net income? Second, is the incremental volatility of comprehensive income over net income associated with market risk? Third, is the incremental volatility of comprehensive income capitalized into share prices? With regard to the first research question, comprehensive income is more volatile than net income. For the second research question, both comprehensive income and net income exhibit strong positive correlation with marker measures of risk (i.e., volatility of stock return and beta). However, the incremental volatility of comprehensive income is not significant. For the third research question, if income volatility captures elements of risk that are priced by the capital market, then higher volatility should be associated with greater risk. This implies, ceteris paribus, higher expected returns and decreased share prices. While the volatility of comprehensive income is capitalized in share prices, the incremental volatility is not. We contribute to prior literature in two major respects. First, most prior research has been concerned with the volatility of financial firms (Barth et al., 1995 and Hodder et al., 2006). We contribute to the literature by providing evidence from non-financial firms. Yen et al. (2007) note that 34% of industry sector comment letters on the Reporting Comprehensive Income exposure draft ( FASB, 1996) negatively comment on excess volatility of comprehensive income. Hence, the motivation for examining the volatility and risk relevance of comprehensive income for non-financial firms is to assess the stated objections of moving to a single statement of comprehensive income. This evidence should be useful to the IASB/FASB project Financial Statement Presentation. Second, because machine-readable data was not available, prior research has tended to use constructed measures of comprehensive income or as-if data, rather than as-reported. Chambers et al. (2007) report that the difference between as-if and as-reported comprehensive income is statistically significant. We use as-reported figures and we employ an extensive sample of observations from non-financial firms over the period 2005–2010. The remaining paper is organized as follows. Section 2 describes the background and prior research. Section 3 describes the sample, descriptive statistics and results. Section 4 reports the results of additional tests and the last section concludes the paper.

The reporting of comprehensive income in a single statement is a controversial issue. In a response to an earlier exposure draft on comprehensive income (FASB, 1996) 34% of non-financial firms negatively comment on the excess volatility of reporting comprehensive income in a single statement. The concern is that the ‘excess’ volatility arising from transitory items is impounded into perceptions of increased risk and reflected in market prices. We address these concerns by examining (1) whether comprehensive income is more volatile than NI, (2) whether the incremental volatility of comprehensive income (relative to net income) is associated with market measures of risk, and (3) whether the incremental volatility of comprehensive income is priced. Most of the prior research related to the volatility of comprehensive income examines fair value accounting in the financial and banking sector (Barth, 1994, Barth et al., 1995 and Barth et al., 1996; and Hodder et al., 2006). In this study we provide empirical evidence on the volatility and risk relevance of comprehensive income for non-financial firms over the period 2005–2010. Furthermore, we use as-reported comprehensive income and components because the as-if estimates, used in prior research, are not reliable estimates of reported numbers ( Chambers et al., 2007). Of our sample firms, 74.1% experience greater volatility of comprehensive income than net income. Both comprehensive income and net income volatility measures exhibit strong positive correlation with the volatility of stock returns and beta. However, the volatility of comprehensive income incremental to net income is not significantly associated with market risk. Further, we measure the extent to which incremental volatility of comprehensive income moderates the relation between earnings and share prices. When interacted with abnormal earnings, income volatility measures are negatively associated with price. However, the incremental volatility of comprehensive income is not captured by price. This study provides empirical evidence on claims made by Exposure Draft (FASB, 1996) respondents. It supports the assertion that comprehensive income is more volatile than net income. However, there is no evidence to suggest that the market is confused or mislead by the volatility of items of other comprehensive income. Furthermore, experimental evidence (e.g., Hirst and Hopkins, 1998; Hunton, 2006) suggests that there are advantages of reporting comprehensive income in a single statement as this lowers the processing costs of analysis and reduces opportunity for earnings management. We have not addresses whether items of other comprehensive income enhance or confound the feedback or stewardship functions of accounting.