Volatility and Risk-Relevance of Comprehensive Income for Non-Financial Firms

Posted: 29 Nov 2010 Last revised: 4 May 2011

See all articles by Shahwali Khan

Shahwali Khan

Institute of Management Sciences - Peshawar

Michael E. Bradbury

Massey University

Date Written: November 28, 2010

Abstract

We examine the volatility and risk relevance of three income measures; net income (NI), comprehensive income (CI) and a constructed measure of adjusted comprehensive income (ACI) for a sample of 79 New Zealand non-financial firms from 2003-2008. We find for the majority of the firms, CI is more volatile than NI or ACI. Further, the relative volatility of ACI is also significantly higher than volatility of NI. We find positive correlation of the three income volatility measures with volatility of stock returns. We find no evidence that these income volatility measures have significant association with beta. The incremental effect of both CI and ACI is negligible on stock prices once the effect of NI is accounted for. Our results support the claim that CI is more volatile than NI and may not be a better proxy of firm’s performance than NI.

Keywords: Comprehensive Income, Net Income, Adjusted Comprehensive Income, Volatility

Suggested Citation

Khan, Shahwali and Bradbury, Michael E., Volatility and Risk-Relevance of Comprehensive Income for Non-Financial Firms (November 28, 2010). Available at SSRN: https://ssrn.com/abstract=1716503

Shahwali Khan (Contact Author)

Institute of Management Sciences - Peshawar ( email )

Sector E-5, Hayatabad, Phase VII
Hayatabad
Peshawar, KPK 25000
Pakistan

Michael E. Bradbury

Massey University ( email )

School of Accountancy
Private Bag 102 904
Auckland
New Zealand
64 9 414 0800 (Phone)
64 9 441 8133 (Fax)

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