Is Comprehensive Income Superior to Net Income as a Measure of Trm Performance?

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....