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

2006 ◽  
Vol 81 (2) ◽  
pp. 337-375 ◽  
Author(s):  
Leslie D. Hodder ◽  
Patrick E. Hopkins ◽  
James M. Wahlen
Keyword(s):  
Standard Deviation ◽  
Stock Returns ◽  
Commercial Banks ◽  
Fair Value ◽  
Net Income ◽  
Income Volatility ◽  
Expected Return ◽  
Market Pricing ◽  
Share Prices ◽  
Comprehensive Income

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.

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

2020 ◽  
Vol 8 (3) ◽  
pp. 371-380
Author(s):  
Amrie Firmansyah ◽  
Wiwik Utami ◽  
Haryono Umar ◽  
Susi Dwi Mulyani
Keyword(s):  
Standard Deviation ◽  
Stock Return ◽  
Accounting Standards ◽  
Developed Countries ◽  
Financial Accounting ◽  
Return Volatility ◽  
Net Income ◽  
Income Volatility ◽  
Stock Return Volatility ◽  
Comprehensive Income

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.

scholarly journals Value Relevance of net income, other comprehensive income, and comprehensive income in Brazil

2020 ◽  
Vol 21 ◽  
pp. 1-22
Author(s):  
Cassiana Bortoli ◽  
Alcido Manuel Juaniha ◽  
Jorge Eduardo Scarpin ◽  
Nayane Thais Krespi Musial ◽  
Claudio Marcelo Edwards Barros
Keyword(s):  
Stock Returns ◽  
Regression Models ◽  
Value Relevance ◽  
Standard Errors ◽  
Positive Contribution ◽  
Net Income ◽  
Control Variables ◽  
Gross Domestic Product Growth ◽  
Comprehensive Income ◽  
Other Comprehensive Income

This paper uses the Ohlson Model to analyze whether Net Income (NI), Other Comprehensive Income (OCI), and Comprehensive Income (CI) are value relevant for market value and the return of shares of publicy-traded Brazilian companies. To maximize the robustness of the results, we inserted the following control variables for each model: equity per Share (EqPS), Size (S), Industry (I), EBITDA per Share (EbPS), Revenue per Share (RePS), Liquidity (L), and Gross Domestic Product Growth (GDPG). The control variables S, RePS, and GDPG were significant for the three models related to the value of the company. The control variables EqPS, EbPS, RePS, and L, on the other hand, were only significant for the three models related to stock returns. Our main variables (NI, OCI, and CI) were found to be statistically significant in five of the six regression models after data analysis in a fixed effect panel using robust standard errors. However, only the variables NI and CI were considered to be relevant in the expected direction, meaning that they offered a positive contribution in explaining the value of the company.

The Value Relevance of Components of Other Comprehensive Income When Net Income Is Disaggregated

2016 ◽  
Vol 19 (04) ◽  
pp. 1650027 ◽  
Author(s):  
Taisier A. Zoubi ◽  
Feras Salama ◽  
Mahmud Hossain ◽  
Yass A. Alkafaji
Keyword(s):  
Stock Returns ◽  
Value Relevance ◽  
Net Income ◽  
Comprehensive Income ◽  
Equity Pricing ◽  
Other Comprehensive Income

The purpose of this study is to examine the equity pricing of other comprehensive income when earnings are disaggregated into several components. Our findings indicate that other comprehensive income can better explain variation in stock returns when net income is reported in a disaggregated form. Additionally, we find that disaggregating both net income and other comprehensive income can explain more of the variation in the stock returns than the two summary components of comprehensive income. Our results survive a series of robustness checks.

scholarly journals The Impact of Comprehensive Income on Owners Equity at the Jordanian Commercial Banks, Analytical Study

2019 ◽  
pp. 1312-1320
Author(s):  
Mohammad Ali Al Hayek ◽  
Abdel-Rahman kh. El-Dalabeeh
Keyword(s):  
Commercial Banks ◽  
Analytical Study ◽  
Study Data ◽  
Net Income ◽  
The Public ◽  
Comprehensive Income ◽  
Study Results ◽  
Other Comprehensive Income ◽  
Relationship Of ◽  
The Impact

The study aimed to examine the impact of comprehensive income statement’s items on the owners equity of Jordanian commercial banks, and to achieve this objective researcher conducted an analytical study by adopting the descriptive and analytical approach, and used the statistical method to analyze the study data represented in the actual data, which were taken from the financial statements of the (13) Jordanian commercial banks for the period (2008-2017). The study found a statistically significant impact of comprehensive income statement’s items on the owners equity of Jordanian commercial banks, and in regard to the secondary hypotheses the study results showed nonexistence of statistically significant impact of net income on the owners equity of Jordanian commercial banks, but found a statistically significant impact for each of the other comprehensive income and comprehensive net income on the owners equity of Jordanian commercial banks. One of the main recommendations of the study will be to increase the attention to comprehensive income, due to its impact on the owners equity, and to conduct additional studies about the impact and the relationship of study variables at the public shareholding companies, in other sectors.

Examining the dominance of Comprehensive Income to Net Income as a Measure of Firm Performance

2020 ◽  
Vol 5 (1) ◽  
pp. 1-13
Author(s):  
Rani Shaista Kanwal
Keyword(s):  
Performance Evaluation ◽  
Firm Performance ◽  
Stock Returns ◽  
Stock Return ◽  
Stock Exchange ◽  
Cash Flows ◽  
Net Income ◽  
Comprehensive Income ◽  
Weak Evidence ◽  
Industrial Group

In this study, we examine the relative ability of comprehensive income and net income to summarize firm performance as reflected in stock returns. We also examine which comprehensive income adjustments get better the aptitude of income to summarize firm performance. We also examine this claim that income measured on a comprehensive basis is a better measure of firm performance than other summary income measures. The results do not show that comprehensive income is superior to net income for evaluating firm performance on the basis of stock return and price. Except for investment industrial group, In Tehran Stock Exchange, we found no evidence that comprehensive income for firm performance evaluation on the basis of cash flows prediction is superior to net income. While, we found the better results for the state companies (only in other companies group), i.e., firm performance evaluation on the basis of cash flows prediction using comprehensive income is superior to net income. Collectively, our results provide some weak evidence that show comprehensive income adjustments improve the ability of income for reflecting firm performance.

scholarly journals The Value and Risk Relevance of Fair Value: The Case of French Firms

2016 ◽  
Vol 6 (2) ◽  
pp. 15
Author(s):  
Mondher Kouki ◽  
Mosbeh Hsini ◽  
Farah Tabassi
Keyword(s):  
Value Relevance ◽  
Fair Value ◽  
Net Income ◽  
Financial Instruments ◽  
Historical Cost ◽  
Comprehensive Income ◽  
Empirical Tests ◽  
Income Measurement ◽  
Value Changes ◽  
Value Measurement

We study the performance of fair value accounting standards of financial instruments starting from the analysis of quality relevance of accounting information. In particular, we are interested in the value relevance and risk relevance of income that contains financial instruments measured or not at fair value. To do so, we compare three income levels known as accounting standard’s history. The three major levels are Full-Fair-Value income measurement (all-fair-value changes recognized in income), piecemeal-fair-value income measurement or comprehensive income (some fair-value changes recognized in income), and historical-cost income measurement or net income (no fair-value measurement existing). The empirical tests of value relevance showed that net income is not a relevant value, and Full Fair Value Income is more significant than the Comprehensive Income. The study shows also that risk relevance is more, measured by the volatility of Full Fair Value Income.

scholarly journals THE VALUE RELEVANCE OF INTERNATIONAL ACCOUNTING STANDARD IMPLEMENTATION AND AUDIT QUALITY

2015 ◽  
Vol 3 (3) ◽  
pp. 801
Author(s):  
Hanifa Zulhaimi ◽  
R. Nelly R. Nelly Nur Apandi
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Audit Quality ◽  
Value Relevance ◽  
Balance Sheet ◽  
Fair Value ◽  
International Accounting ◽  
Net Income ◽  
Comprehensive Income ◽  
Other Comprehensive Income

The implementation of international accounting standards in Indonesia has significantly affected financial reporting. It increases information relevance for the investors because a fair value comprehensively represents assets and liabilities of an entity as of the balance sheet date. However, this triggers polemics over the value relevance of International Financial Reporting Standard (IFRS). This can be seen from stock price decline. This study aims to find out the effect of net income and other comprehensive income on stock price and to observe the effect of other comprehensive income moderated by audit quality. Furthermore this study also aims to find out the effect of  the subjectivity of OCI components. Using a sample of 79 companies, the writer analyzes 2014 financial statements derived from Indonesia Stock Exchange. Based on the result, the predetermined hypotheses are unable to prove. Net income is the only variable that affects stock return. Thus it can be concluded that net income has a value relevance for the investors in making economic decisions.

scholarly journals The Impact of Other Comprehensive Income Items on Financial Performance: Case of Jordanian Commercial Banks

2019 ◽  
pp. 1216-1228
Author(s):  
Adul Aziz Saymeh ◽  
Ayman Mansour Khalaf ALkhazaleh ◽  
Eman Marwan Musallam
Keyword(s):  
Financial Performance ◽  
Commercial Banks ◽  
Net Income ◽  
Return On Assets ◽  
Return On Equity ◽  
Comprehensive Income ◽  
Dependent Variables ◽  
Other Comprehensive Income ◽  
Independent Variable ◽  
The Impact

This study aims to determine the effect of the independent variable other comprehensive income on the dependent variables represented by the financial performance of commercial banks. Researcher has studied the case of Jordanian Commercial Banks during the period 2012 to 2017. The study sample consists of 13 Jordanian commercial banks. The study independent variable was given by the quotient of other comprehensive income on net income. The ratios: financial performance by return on assets, and return on equity were the two dependent variables. Study hypotheses were tested by the simple regression equation and T- test. It was found that there was a statistically significant effect of other comprehensive income on the financial performance as measured by the return on assets and return on equity. This significance can be attributed to the increasing weight of other comprehensive income items which makes the value of other comprehensive income an indicator of profitability and efficiency of banks and means of maximizing their wealth. It is recommended that Amman Stock Exchange, Securities Commission and the Companies Control Department, to urge the companies listed on ASE to increase the awareness of companies’ management about the importance of other comprehensive income concept.

The Market Pricing of Other-Than-Temporary Impairments

2013 ◽  
Vol 89 (3) ◽  
pp. 811-838 ◽  
Author(s):  
Brad A. Badertscher ◽  
Jeffrey J. Burks ◽  
Peter D. Easton
Keyword(s):  
Financial Crisis ◽  
Standard Setting ◽  
Fair Value ◽  
Data Availability ◽  
Net Income ◽  
Market Pricing ◽  
Jel Classifications

ABSTRACT When the fair value of an investment security falls below amortized cost and there is significant doubt that the firm can hold the security until the fair value recovers, an other-than-temporary impairment (OTTI) is recognized in net income. Thus, an OTTI is a disclosure about the prospect of recovering an unrealized loss. Our findings suggest that investors priced banks' OTTI recognition during and after the financial crisis. Investors were unable to fully anticipate reported OTTIs, and priced OTTIs incrementally to reported unrealized gains/losses. After banks were required to bifurcate OTTIs, investors priced only the portion of OTTI recognized in earnings. Our results suggest that reporting unrealized losses in earnings via an OTTI changes how investors price the losses. The results inform recent standard-setting initiatives to expand disclosure about changes in fair value. JEL Classifications: M41; M42; M44. Data Availability: Data are available from sources identified in the paper.

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