The value relevance of comprehensive income reporting in Nigeria

The transition to International Financial Reporting Standards (IFRS) requires Nigerian companies to mark-to-market certain financial assets and liabilities and to recognize holding gains and losses relating to these transactions as items of other comprehensive income. The two main objectives of this study are: 1) to investigate the relative and the incremental value relevance of comprehensive income and its components and 2) to examine the effects of reliability factors on the value relevance of other comprehensive income and its components. Using 349 firm-year observations, the result of Pooled Ordinary Least Square regression indicates the relative value relevance of net income and comprehensive income, but net income dominates comprehensive income. The aggregate other comprehensive income and fair value gains and losses on non-current assets were incrementally value relevant, but with coefficients lower than the traditional net income. These results are consistent for both financial and nonfinancial firms when using the price and the return model. The result on the first test of reliability shows a positive influence of corporate governance mechanisms on investors’ pricing of other comprehensive income. The result of the second test of reliability indicates that fair value gains and losses measured based on the quoted prices and observable input are value relevant, but unobservable input was not. However, when level measures were interacted with the corporate governance mechanisms, the impact was more on the unobservable input. Finally, findings regarding compliance with relevant accounting standards suggest low compliance, but compliance enhances the value relevance of the components of other comprehensive income. The results documented, herein, constitute a pioneering role on the relative and the incremental value relevance of comprehensive income reporting in Nigeria. One primary recommendation of the study is that reporting entities should pursue compliance with IFRS standards in order to increase reliability of financial process for investor