Other Comprehensive Income and the Market's Processing of Earnings Information

ABSTRACT This study examines whether other comprehensive income (OCI) impacts the market's processing of earnings in the context of market uncertainty/disagreement. OCI is not consistently directly associated with uncertainty. However, while higher earnings are associated with reduced uncertainty, large OCI gains and losses interact with earnings to weaken this relation. The interactive effects of OCI with earnings apply to both cash flow and accrual earnings components, and are driven by OCI components related to investments, foreign currency translation adjustments, and pension adjustments. Overall, our results suggest a negative indirect influence of large OCI items on market assessment of firms' fundamentals.