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A Critical Note on Empirical Comprehensive Income Research
This paper presents a critical analysis of empirical comprehensive income research. We distinguish between the informational and the measurement approach to value relevance research and systematically trace the origin of the empirical specifications under both approaches. We demonstrate that value relevance regressions in comprehensive income research are often either arbitrary, underspecified or both. The second part of the paper performs a detailed investigation of the empirical findings, which reveals several peculiarities that defy economic intuition and affect the credibility of the research findings. The conclusion of the paper is that there is danger in taking the empirical findings of this research domain at face value and that the potential for informing standards setters is probably limited.
1 Introduction
An old and unresolved issue in accounting is whether income should be determined according to the principle of clean surplus accounting. Clean surplus income includes all value changes in equity, except those resulting from transactions with the owners. Standard setters have departed from clean surplus accounting on many occasions, allowing...