Other Comprehensive Income in Scandinavia : Value relevant or not?

Abstract: Other comprehensive income is a widely debated subject, that has raised controversies and scholarly debates since Littleton’s pivotal economic research in the 1940s. Today OCI is an ill-defined measure of performance, with potentially large consequences for publicly traded companies. The purpose of this study is to research whether ‘net income’ with the inclusion of ‘other comprehensive income’ to a higher degree explain firm performance than net income alone, and if there is a significant difference in the mean of OCI between the three Scandinavian countries. Three hypotheses were formed, carefully formulated with similarities of many large European studies, through an exhaustive literature study conducted. The thesis mainly relies on theory regarding studies on value-relevance, clean-surplus accounting, and dirty-surplus accounting. The study used data collected through the Eikon database and conducted empirical tests on a sample consisting of 479 firms in Scandinavia, with 260 Swedish companies, 97 Danish companies, and 122 Norwegian companies. A pro forma OCI was calculated using proxy-numbers, and then tested. The empirical findings show that Net Income with the inclusion of OCI does explain firm-performance to a higher degree than Net Income alone, that is the relative value-relevance. Another hypothesis was framed to test the incremental value-relevance of OCI, and the results also showed this to be significant. The study however failed to find support for whether OCI or Net Income had any significant difference between the incremental value-relevance. The results also found evidence that support the claim that there is a significant difference in the mean of OCI between the three Scandinavian countries. The authors concluded the study by emphasizing an apparent need for standard-setters to further develop the concept of OCI due to the ambiguous nature it seems to present toward investors.