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How Comprehensive is Comprehensive Income? The Value Relevance of Foreign Currency Translation Adjustments
Author(s) -
Pinto Jo Ann
Publication year - 2005
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2005.00113.x
Subject(s) - currency , earnings , valuation (finance) , economics , relevance (law) , value (mathematics) , foreign exchange , devaluation , foreign exchange risk , econometrics , financial economics , monetary economics , accounting , mathematics , statistics , political science , law
Abstract Prior empirical research has been unable to forge an unambiguous link between foreign currency translation adjustments, which are an element of “other items of comprehensive income,” and firm valuation. This study adds to the existing literature by empirically testing the value relevance of foreign currency translation adjustments in an earnings and book value model. Interaction terms, which serve as proxies for the theoretical sources of exchange rate exposure, are included in the estimating equation. The main finding of this study is that foreign currency translation adjustments are significantly value relevant when their parameter estimates are allowed to vary in the cross‐section.