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This study investigates whether capital market participants incorporate the implications of gains and losses reported as other comprehensive income in an efficient manner when determining stock prices. OCI is reported in a statement of comprehensive income as a performance measure after SFAS 130. A large set of prior research finds the information content of OCI. In line with this stream of value relevance research, I complement to the literature on value relevance of OCI by examining whether investors incorporate the implications of OCI properly. Prior studies document that investors do not correctly impound the implications of OCI into stock prices, and analysts do not understand the implications of OCI for future earnings (Choi et al. 2007; Jeon et al. 2007). Chambers et al.(2007) assert that the use of derived OCI data estimated from the period before implementation of comprehensive income reporting could affect the results as to value relevance due to measurement error. Furthermore, investors more fully assimilate information that is more prominent, and managers determine OCI reporting choice as if investors are affected reporting location when they estimate the firm’s value (Hirst and Hopkins 1998; Maines and McDaniel 2000; Lee et al. 2006; Bamber et al. 2010; Park and Ji 2012). In addition, required OCI disclosure on the performance statement suggests that OCI is considered to be useful accounting information, and possibly assists decision making of investors with reported OCI value. Unlike prior research, I can not find any evidence that capital market either overweights or underweights the implications of OCI for future earnings after implementation of OCI reporting period. The findings suggest two alternative scenarios: (1) different from my empirical test, prior studies use derived OCI data involving measurement error, because they conduct the test using sample before implementation reporting OCI in a statement of performance, or (2) reporting location of OCI in a financial statement as performance measure affects the decision-making of investors. My results have implications at the time of adoption IFRS. As OCI is disclosed on the performance statement, investors are aided by ‘reported’ OCI numbers to appreciate the implications of OCI in an efficient manner. Also, this study complements the evidence on mispricing of accounting information.
