Analyst Following, Information Environment and Value Relevance of Comprehensive Income: Evidence from China1. (October 2015)

• Record Type: Journal Article
• Authors: He, Hon; Lin, Zhijun
• Is Part Of: Asia-Pacific journal of financial studies. Volume 44:Number 5(2015:Oct.)
• Page Start: 688
• Page End: 720
• Publication Date: 2015-10
• Subjects: Comprehensive income -- Analyst following -- Information environment -- Value relevance -- Chinese accounting; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12110
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: This study investigates the value relevance of comprehensive income (CI) reporting contextual to the specific market and financial reporting environment in China. We posit the information content of CI or other comprehensive incomes (OCI) is affected by the information environment. By applying analyst coverage as a main proxy for firms' information environment, this study finds that analyst following contributes to reducing information asymmetry and increasing information preciseness and investors' comprehension, thus it is positively associated with the value relevance of CI or OCI information. We also document that a few OCI items have incremental explanatory power to firm valuation in the Chinese market, which is mainly for those firms with greater analyst coverage. We therefore conclude that the information environment should be taken into consideration in evaluating the value relevance of CI reporting.