Information Content of Other Comprehensive Income and Net Income: Evidence for Japanese Firms

Abstract

This paper investigates information content of net income, other comprehensive income items, and “pseudo” comprehensive income for Japanese firms. The relative information content test demonstrates we cannot distinguish between net income and other alternative comprehensive income numbers. The incremental information content test shows other comprehensive income items have significant information content. The signs are counterintuitive, but we find the stock market reactions to other comprehensive income items are related to the degree of firms' foreign dependency and on the magnitude of the ratio of available-for-sale securities to equities in a meaningful way. We conclude that comprehensive income and other comprehensive income are useful to disclose.