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Analyst Following, Information Environment and Value Relevance of Comprehensive Income: Evidence from China
Author(s) -
He Hong,
Lin Zhijun
Publication year - 2015
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12110
Subject(s) - relevance (law) , valuation (finance) , proxy (statistics) , explanatory power , information asymmetry , business , value (mathematics) , market value , comprehension , accounting , actuarial science , finance , computer science , political science , philosophy , epistemology , machine learning , law , programming language
This study investigates the value relevance of comprehensive income ( CI ) reporting contextual to the specific market and financial reporting environment in C hina. We posit the information content of CI or other comprehensive incomes ( OCI ) is affected by the information environment. By applying analyst coverage as a main proxy for firms' information environment, this study finds that analyst following contributes to reducing information asymmetry and increasing information preciseness and investors' comprehension, thus it is positively associated with the value relevance of CI or OCI information. We also document that a few OCI items have incremental explanatory power to firm valuation in the C hinese market, which is mainly for those firms with greater analyst coverage. We therefore conclude that the information environment should be taken into consideration in evaluating the value relevance of CI reporting.