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Comprehensive Income: Who's Afraid of Performance Statement Reporting
Linda Smith Bamber, University of Georgia
John Xuefeng Jiang, Michigan State University
Kathy R Petroni, Michigan State University
Isabel Yanyan Wang, Michigan State University
ABSTRACT. Our study provides new insight into why most firms do not follow policymakers’ preference to report comprehensive income in a performance statement, and instead relegate it to the statement of changes in equity. We argue that managers believe reporting comprehensive income in the more salient performance statement will lead financial statement users to perceive the firm’s performance as more volatile. Our empirical evidence on a broad cross-section of firms shows that managers who are more likely to be hurt by increased perceived volatility of firm performance – those with less secure positions and stronger equity-based incentives – are less likely to adopt the more transparent performance reporting. Our results suggest that a relatively subtle (and previously unexplored) aspect of managers’ self-interest – their sensitivity to the perceived volatility of the firm’s performance – is associated with their accounting choices.
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