Other comprehensive income and price, return, risk: what is value relevant? Evidence from Europe

The usefulness of accounting information to financial market valuation has been of a great interest for academics, financial analysts and standard setters. In this study we investigate the value relevance of the Other Comprehensive Income (OCI). Limited literature has focused on the relevance on equity price and return. In this study we go further by including the usefulness of OCI volatility on equity total risk which contributes to the inconclusive debate on how markets perceive different pieces of accounting information. After the adoption of the IAS (1), companies must disclose information about OCI, which shifts the focus from net income to comprehensive income. It shows the return that a company has made on its economic resources, thus helping to improve investors’ decision-making process. To test the relevance aspects of the OCI, we analyse the 50 companies of the STOXX 50 index over the period from 2010 to 2016. We find that OCI is negatively correlated with stock price; we also demonstrate little evidence on the equity return relevance. In addition, our findings reveal that the volatility of OCI is positively related to equity total risk. Our results provide novel insights at the European Union level about the inconsistent valuation usefulness of OCI.