Author(s)

Nobuyuki Kumoi ¹, Jiarui Xu ², Yifei Liu ³

Affiliation(s)

¹ Faculty of Economics, Niigata Sangyo University, Kashiwazaki, Niigata, 9451393, Japan
² Faculty of Current Business, Kyushu International University, Kitakyushu, Fukuoka, 8058512, Japan
³ Monash Business School, Monash University, Melbourne, Victoria, 3145, Australia

Corresponding Author

ABSTRACT

This study investigates the market pricing of OCI recycling using data from Japanese listed companies between 2013 and 2022. We analyzed 3,610 instances of non-zero OCI recycling using price and return models. The market prices OCI recycling, notably the AFS component, while OCI components with lower persistence have less impact. These findings challenge the ASBJ's stance that recycling all OCI components into net income offers more informational value than non-recycling. Since net income is a key performance metric, we suggest restricting OCI recycling to maintain its reliability. The study also raises concerns about the OCI framework under IFRS, emphasizing the need for clearer guidelines and further debate.

KEYWORDS

CITE THIS PAPER

Nobuyuki Kumoi, Jiarui Xu, Yifei Liu, The Value Relevance of OCI Recycling in Japan: Evidence from Stock Market Reactions. Financial Engineering and Risk Management (2024) Vol. 7: 51-60. DOI: http://dx.doi.org/10.23977/ferm.2024.070507.

REFERENCES

[1] Accounting Standards Board of Japan. (2010). ASBJ Statement No.25 Accounting Standard for Presentation of Comprehensive Income and an Amendment to a Related Standard. Tokyo, Japan: ASBJ.
[2] Cauwenberge, P.V., & Beelde, I.D. (2007). A Critical Note on Empirical Comprehensive Income Research. Working Paper, Ghent University.
[3] Park, H. (2018). Market Reaction to Other Comprehensive Income. Sustainability.
[4] Rees, L. L., & Shane, P. B. (2012). Academic research and standard-setting: The case of other comprehensive income. Accounting Horizons, 26(4), 789-815.
[5] FASB (2011). Accounting Standards Update (ASC) Topic 220, Comprehensive Income, Financial Accounting Standards Board.
[6] International Accounting Standards Board. (2006). Exposure Draft of Proposed Amendments to IAS No.1 Presentation of Financial Statements: A Revised Presentation, U.K.: IASCF.
[7] International Accounting Standards Board. (2011). Presentation of Financial Statements (Amended International Accounting Standards No.1): U.K.: IASCF.
[8] ASBJ. (2015a), ASBJ Modification Accounting Standard No. 2, Accounting for Other Comprehensive Income, Accounting Standards Board of Japan.
[9] ASBJ. (2015b), Foreword to the Exposure Draft on Japan's Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications, Accounting Standards Board of Japan.
[10] Arthur, N., Clout, V. J., Wu, Y., & Zhou, X. (2017). Benchmark beating using recycling of other comprehensive income. Social Science Electronic Publishing.
[11] Chiorean, R., Kirschenheiter, M.T., & Ramakrishnan, R.T. (2017). Earnings Management through OCI Components, Social Science Electronic Publishing.
[12] Zhao, X., Zhao, K., & Wei, W. (2018). Earnings Management using Other Comprehensive Income Items: A Multi-Case Study on Chinese Listed Companies. In 2nd International Conference on Social Sciences, Arts and Humanities, 198-201.
[13] Inoue, S. (2020). Earnings Management using Other Comprehensive Income Recycling: Evidence from Japan. Fukuoka University Business Series, 65(2), 265-309.
[14] Mechelli, A., & Cimini, R. (2013). Is Comprehensive Income Value Relevant and Does Location Matter? A European Study. Accounting in Europe, 11, 59-87.
[15] Djaballah, A., & Fortin, A. (2021). Value relevance of comprehensive income for the Canadian market. Accounting Perspectives, 20(1), 49-77.
[16] Jahmani, Y., Choi, H., Park, Y., & Jiayun Wu, G. (2017). The Value Relevance of Other Comprehensive Income and Its Components. Econometric Modeling: Capital Markets - Asset Pricing eJournal, 9(1), 1-11.
[17] Lee, J., Lee, S.J., Choi, S., & Kim, S. (2020). The Usefulness of Other Comprehensive Income for Predicting Future Earnings. Journal of Asian Finance, Economics and Business, 7, 31-40.
[18] Dechow, P., & Schrand, C. (2004). Earnings Quality. The Research Foundation of CFA Institute.
[19] Kothari, S.P., & Zimmerman, J.L. (1995). Price and return models. Journal of Accounting and Economics, 20, 155-192.
[20] Kanagaretnam, K., Mathieu, R., & Shehata, M. (2009). Usefulness of Comprehensive Income Reporting in Canada. Journal of Accounting and Public Policy, 28, 349-365.
[21] Dong, M., Ryan, S.G., & Zhang, X. (2014). Preserving amortized costs within a fair-value-accounting framework: reclassification of gains and losses on available-for-sale securities upon realization. Review of Accounting Studies, 19, 242-280.
[22] Chen, P.F., & Zhang, G. (2006). How Do Accounting Variables Explain Stock Price Movements? Theory and Evidence. S&P Global Market Intelligence Research Paper Series. (43): 219-244.
[23] Zhang, G. (2014). Accounting information and equity valuation: theory, evidence, and applications. 1st ed. New York: Springer, 97-113. 
[24] Badertscher, B. A., Burks, J. J., & Easton, P. D. (2014). The market pricing of other-than-temporary impairments. The Accounting Review, 89(3), 811-838.
[25] Detzen, D. (2016). From compromise to concept? – Areview of 'other comprehensive income'. Accounting and Business Research, 46, 760 - 783. 

Sponsors, Associates, and Links

• Information Systems and Economics
  
  
• Accounting, Auditing and Finance
  
  
• Industrial Engineering and Innovation Management
  
  
• Tourism Management and Technology Economy
  
  
• Journal of Computational and Financial Econometrics
  
  
• Accounting and Corporate Management
  
  
• Social Security and Administration Management
  
  
• Population, Resources & Environmental Economics
  
  
• Statistics & Quantitative Economics
  
  
• Agricultural & Forestry Economics and Management
  
  
• Social Medicine and Health Management
  
  
• Land Resource Management
  
  
• Information, Library and Archival Science
  
  
• Journal of Human Resource Development
  
  
• Manufacturing and Service Operations Management
  
  
• Operational Research and Cybernetics