6 Conclusions
We explore a unique regulatory setting that, starting from 2007, requires that the line item of investment income appear above the line of operating income, in contrast to appearing below the line of operating income prior to 2007. We use this setting to investigate whether firms change corporate activities to manage investment income opportunistically in response to this regulation change, and we explore how investors value the information content of this line item when it is presented in a different place in the income statement. From the firm perspective, we find that investment income and core earnings exhibit a significantly negative correlation every year in the post-regulation period, in contrast to a significantly positive correlation in the pre-regulation period. Firms tend to report high (low) investment income when core earnings are low (high) to influence the amount of reported operating income in the post-regulation period, mostly through opportunistically selling securities or long-term equity investments. This opportunism is concentrated in the fourth quarter, in response to the earnings performance in the first three quarters. Besides investment income, firms also use non-operating income to manage earnings, especially in the post-regulation period.
