This study aims to investigate whether and how the other comprehensive income (OCI) amount explains firms’ future orientation toward accounting conservatism behavior. Whereas OCI provides incrementally useful and more transparent accounting information, the authors argue that a higher amount of OCI aggregate may also lead to a lower demand for accounting conservative practices.
To test the hypothesis, the authors develop a fixed-effect panel analysis involving a sample of US non-financial listed companies during a seven-year period from 2012 to 2018.
Coherently with the authors’ expectations, the results provide evidence that a higher amount of OCI aggregate significantly diminishes the future level of firms’ conditional conservatism. Additionally, further analyses reveal that the lowering of information asymmetry perceived by market participants is a valid channel through which such a relationship functions.
The main limitations of the study arise whereas the inferences the authors made heavily depend on the chosen proxies’ validity for OCI information.
Overall, the authors’ study has important implications for both practitioners and investors, as it prompts the idea that they can predict certain accounting policies relying on the usefulness of OCI information, which consequently allows them to make more informed and economically relevant choices.
To the best of the authors’ knowledge, this would be the first research to document the relationship between OCI information usefulness and subsequent conditional conservatism behavior, under the spectrum of informativeness concerns.
