Value Relevance of available-for-sale financial instruments (AFS) and revaluation surplus of PPE (REV) components of other comprehensive income

Abstract

Abstract.Value relevance studies have thus far provided mixed evidence. Studies also found that fair value reporting has a significant impact on the value relevance of other comprehensive income. Additionally, most studies on value relevance of other comprehensive income focused on developed countries where the capital market is more efficient. In these settings due to the existence of active market, fair valuation of assets may not pose a major problem. In Malaysia the mandatory reporting of comprehensive income by all listed firms based on the requirement of FRS101, coincides with the adoption of FRS139 the standard for financial instrument and could be an interesting setting to investigate. This study hypothesized that other comprehensive income and its components are associated with share price. The results indicate that other comprehensive income and its components are value relevant. The results indicate that the move towards a more comprehensive income reporting through the preparation of the Statement of Comprehensive Income results in more informative financial reporting.

Value Relevance of Earnings Component in the Financial Industry

“…Pinto (2005) also found that the OCI component in the form of foreign currency translation adjustments had value relevance for a sample of companies in America between 1991 and 1996. The relevance of the OCI value after the mandatory presentation of OCI was also found by Yousefinejad, Ahmad, & Embong (2017) and Park (2018).…”

The Effect of Net Income and Other Comprehensive Income on Future’s Comprehensive Income With Attribution of Comprehensive Income as Moderating Variable

“…Regarding the relevance of financial assets available for sale, in line with some previous research, the pension benefit program items are in contrast to previous research outside of Indonesia. In Australia, the most relevant OCI item is cash flow hedges (Banks et al, 2018), as well as in America (Rees & Shane, 2012), in Iran the most relevant is the revaluation of fixed assets (Steinberg & Forscher, 2014), in Canada is the profit loss of financial assets (Kanagaretnam et al, 2009) and in Malaysia are the profit loss of financial assets and asset revaluation (Yousefi Nejad & Ahmad, 2017).…”

“…Meanwhile, other studies concluded that OCI has low predictive power in estimating future net income and future cash flow, NI is more predictive than OCI (Jones & Smith, 2011). Although the difference is not significant, NI is more predictive in assessing stock price changes compared to OCI (Kubota et al, 2011;Yousefi Nejad & Ahmad, 2017;Humayun Kabir & Laswad, 2011;Kanagaretnam et al, 2009); Būmane, 2018), Steinberg & Forscher, 2014. That means, NI is more predictive than OCI because NI is a real income that has been realized, whereas OCI has not been realized due to changes in fair value and volatility in market conditions (not due to managerial performance results).…”

“…This theory stated that pressure from the government and professional body influences organizational behavior to guarantee the legitimacy of organizational operations. The study of Yousefi Nejad & Ahmad (2017) and Kubota et al (2011) concluded that additional information about OCI and its components in the income statement proved to be useful for investors for decision making, related to their ability to predict stock prices. The use of Institutional Theory is based on the facts in Indonesia that the regulations established by the Indonesian government and the Indonesian Accountants Association (IAI), in this case, the convergence of SAK to IFRS will be followed by public entities in Indonesia.…”

Does Recycling Contribute to Accounting Quality?

“…Those studies do not provide a consensus on accounting quality of OCI. For instance, while Devalle and Magarini (2012), Veltri and Ferraro (2018) and Caliskan (2019) report no evidence for accounting quality of OCI, Mechelli and Cimini (2014), Yousefinejad et al (2017) and Park (2018) conclude the opposite outcome. In a single study, Goncharov and Hodgson (2011) find evidence for accounting quality of OCI in 9 out of 16 analysed jurisdictions.…”