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Journal of Accounting and Economics 26 (1999) 43 — 67
Is comprehensive income superior to net income
as a measure of firm performance?
Dan Dhaliwal , K.R. Subramanyam *, Robert Trezevant
College of Business and Public Administration, University of Arizona, Tucson, AZ 85721, USA
Leventhal School of Accounting and Marshall School of Business, University of Southern California,
Los Angeles, CA, 90089-1421, USA
Received 1 October 1997; received in revised form 1 October 1998
Abstract
With the exception of financial firms, we find no evidence that comprehensive income
is more strongly associated with returns/market value or better predicts future cash
flows/income than net income. Moreover, the only component of comprehensive income
that improves the association between income and returns is the marketable securities
adjustment. Our results do not support the claim that comprehensive income is a better
measure of firm performance than net income. Our results also raise questions about the
appropriateness of items included in SFAS 130 comprehensive income as well as the need
for mandating uniform comprehensive income disclosures for all industries.
1999
Elsevier Science B.V. All rights reserved.
JEL classification: M41
Keywords: Capital markets; Summary measures of performance; Comprehensive income; SFAS 130
* Corresponding author. Tel.: 1 213 740 5017; fax: 1 213 747 2815; e-mail: krs@almaak.usc.edu
This paper has substantially benefited from the comments and suggestions of S.P. Kothari (the
editor), Doug Skinner (the referee and discussant), Ashiq Ali, Ray Ball, Mary Barth, Bill Beaver,
Mary Harris, Sanjay Kallapur, Tom Lys, Lillian Mills, Krishna Palepu, Mort Pincus, Katherine
Schipper, Mark Trombley, Terry Warfield, Ross Watts, John Wild, Jerry Zimmerman and the
conference participants at the 1998 Journal of Accounting and Economics Conference. The research
assistance of Marcella Feng and Irina Moroaica is gratefully acknowledged....