臺大管理論叢 NTU Management Review VOL.30 NO.2

Asymmetric Valuation Adjustments in Accumulated Other Comprehensive Income 168 7. Conclusions Current accounting rules employ two categories of income to explain changes in the book values of equity: net income and Other Comprehensive Income (OCI). OCI might be subject to discretionary adjustments by management due to its importance in debt contracting, firm equity valuation, and managerial bonus determination. Using changes in the firms’ market value of equity to measure variations in business conditions, we empirically examine whether firms adjust their OCI amounts to manage the book value of equity. We find that the book value of equity increases (decreases) by approximately 0.09% (0.003%) through changes in OCI amounts, for a 1% improvement (deterioration) in the market value of equity over the prior year. The asymmetric OCI adjustments remain significant when we extend the observation window period to up to three accounting periods, which is consistent with the assertion that management makes OCI adjustments on purpose. Further analyses indicate that asymmetric adjustments are more significant for firms with more serious agency problems. By showing that firms adjust their OCI amounts to manage the book value of equity, our study reveals a potentially important and yet understudied area of discretionary accounting choices. In addition, our results reveal that managers possess considerable discretion over the estimates of OCI adjustments to secure their private benefits, which have important implications for investors. Our results also assist accounting standard makers evaluate how much judgement management should be given in financial reporting for OCI items (Healy and Wahlen, 1999).