Does Other Comprehensive Income Impact Equity Research Analysts’ Opinion of a Stock?

This paper investigates whether the influence Other Comprehensive Income has an impact on equity research analysts’ opinions of a stock. Generally Accepted Accounting Principles (GAAP) require publicly-traded companies to report Comprehensive Income (CI) in their audited financial statements, with CI comprised of net income and other comprehensive income (OCI). Prior research suggests CI is potentially a predictor of value and risk, but investors are not benefiting from this information. There has been little research conducted in this area since the introduction of FASB ASU 220. We conducted an experiment with 153 equity research analysts and 10 follow-up interviews covering a wide range of topics to see if OCI impacted their opinions towards the company’s stock. Our experiment consisted of a 2 x 3 research design involving six variations of a fictitious company; three with net income and three with a net loss, and each with either zero OCI, positive OCI, or negative OCI. Our findings suggest that in general, analysts do not believe OCI is helpful in their analysis yet when presented with OCI, it does impact their evaluation of a company