Implications of Comprehensive Income Disclosure for Future Earning and Analysts' Forecasts

Abstract

This paper examines the association of comprehensive income with

subsequent period net income as well as analysts earnings forecasts.

Our results support the notion that comprehensive income is

incrementally useful in predicting subsequent period changes in net

income. We also document that comprehensive income is associated

with analysts earnings forecast revisions and forecast errors. The

evidence is consistent with analysts failure to fully utilize the

information disclosed in comprehensive income. The result suggests

that analysts revise their year t+1s forecast downward when

comprehensive income is smaller than net income but they do not revise

the forecast upward when comprehensive income is greater than net

income. This evidence on the asymmetric use of comprehensive income

is consistent with the notion that the future recognition of unrecognized losses is more predictable than the future recognition of unrecognized

gains.