Properties of Net Income and Total Comprehensive Income -- New Zealand Evidence
Kabir, M.H. and Laswad, F. (2011). Properties of net income and total comprehensive income: New Zealand evidence, Accounting Research Journal, 24 (3): 268-289.
1 Pages Posted: 25 Jul 2015 Last revised: 10 Aug 2015
Date Written: 2011
Purpose – The purpose of this paper is to investigate the properties of net income (NI) and total comprehensive income (TCI) of listed companies in New Zealand (NZ). Four properties of TCI and NI are examined: persistence, variability, predictive ability, and value relevance. Whether the value relevance of TCI depends on its reporting location is also investigated.
Design/methodology/approach – A cross-sectional research design is used with data on TCI reported by NZ listed companies in 2010 under the new disclosure requirement in IAS 1. Ordinary least squares (OLS) regressions are used with a sample of 86 ﬁrms to test for persistence, variability, and predictive ability, and 81 ﬁrms to test for value relevance of NI and TCI.
Findings – The study ﬁnds: NI is potentially more persistent than TCI and potentially explains contemporaneous stock returns better than TCI; no signiﬁcant difference in the variability and predictive ability of NI and TCI; little evidence that the value relevance of TCI depends on its reporting location; other comprehensive income (OCI) has incremental ability to predict one-year-ahead CFO, although the incremental ability of OCI to predict one-year-ahead NI is not statistically signiﬁcant; and OCI is not incrementally value relevant.
Practical implications – The ﬁndings would be of interest to securities analysts and other users in valuing ﬁrms and when earnings are used in contractual settings (e.g. management compensation). Further, the results would also be of potential interest to standard-setters.
Originality/value – The literature on comprehensive income is growing. However, the authors are not aware of any study that investigates the properties of NI and TCI in accordance with the new requirement to report comprehensive income in the amended IAS 1 which came into effect in NZ on January 1, 2009. The paper adds current evidence on the properties of NI and TCI under IFRS to the international literature.
Keywords: New Zealand, Earnings, Income, Listed companies, Disclosure, Persistence, Variability, Predictive ability, Value relevance, Comprehensive income
JEL Classification: G32, M41
Suggested Citation: Suggested Citation