Impacts of other comprehensive income disclosure on earnings management

Purpose – The purpose of this paper is to verify whether the disclosure of other comprehensive income has effectively improved the transparency of corporate disclosure and thus effectively reduced earnings management. Design/methodology/approach – In total, 391 valid samples are selected from more than 860 listed companies of Shanghai A shares in 2009, excluding finance and insurance categories, those with incomplete data and samples whose other comprehensive income is zero. Findings – The results show that other comprehensive income has played an important role in all comprehensive income and significantly affected earnings management. The disclosure of other comprehensive income is negatively related to earnings management, that is, disclosure of other comprehensive income can curb earnings management to some extent in order to make the public better understand the performance of a given company. Research limitations/implications – Owing to the short period of time for the issuance of Accounting Standards No. 3, there are fewer comparable data. Besides, only companies from Shanghai A shares during 2009 are surveyed without Shenzhen Share. Finally, there should be a dialectic and mutual relation between earnings management and other comprehensive income. Practical implications – The paper's findings suggest that it is necessary to carry out the disclosure to improve the transparency of the accounting information, so as to curb earnings management and improve earnings quality to some extent, which provides valuable reference for the government's decision. Originality/value – Finance [2009] 8 on the issuance of Accounting Standards No. 3 issued by Ministry of Finance Republic of China in June 2009 explained that all listed companies are required to disclose “comprehensive income” and “other comprehensive income” under the item “earnings per share” in the income statement. Based on the 2009 annual report of listed companies, the paper elaborates descriptive statistics related to the composition of other comprehensive income. Empirical research is conducted to verify the effect of the new policy. In a word, the paper selects a big number of samples to conduct the study in order to make more valuable reference.