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Cherry Picking, Disclosure Quality, and Comprehensive Income Reporting Choices: The Case of Property‐Liability Insurers *
Author(s) -
Lee YenJung,
Petroni Kathy R.,
Shen Min
Publication year - 2006
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1506/5qb8-pbqy-y86l-dryl
Subject(s) - equity (law) , accounting , comprehensive income , business , earnings , net income , financial statement , income statement , liability , actuarial science , reputation , economics , gross income , public economics , audit , social science , tax reform , sociology , balance sheet , political science , law , state income tax
Statement of Financial Accounting Standards No. 130: Reporting Comprehensive Income encourages enterprises to report comprehensive income on a performance statement rather than on a statement of equity. We investigate the reporting decisions of 82 publicly traded property‐liability insurers that are fairly evenly split in their choice. Our results demonstrate that insurers with a tendency to manage earnings through realized securities' gains and losses (that is, cherry pickers), as well as insurers with a reputation for poor disclosure quality, are more likely to report comprehensive income in a statement of equity. Apparently, these insurers face the highest cost of transparency. We do not find a relation between the reporting decision and the volatility of comprehensive income relative to the volatility of net income. Our findings that insurers' comprehensive income reporting choices are a reflection of their proclivity toward cherry picking as well as their level of disclosure quality should be of interest to standard‐setters because of the controversy over standard‐setters' preference for mandating all firms to report comprehensive income in a performance statement.