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Properties of net income and total comprehensive income: New Zealand evidence

Author

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  • M. Humayun Kabir
  • Fawzi Laswad

Abstract

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.

Suggested Citation

  • M. Humayun Kabir & Fawzi Laswad, 2011. "Properties of net income and total comprehensive income: New Zealand evidence," Accounting Research Journal, Emerald Group Publishing Limited, vol. 24(3), pages 268-289, November.
    • Handle: RePEc:eme:arjpps:v:24:y:2011:i:3:p:268-289
    DOI: 10.1108/10309611111187000
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    Citations

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    Cited by:

    1. Carmen- Alexandra BALTARIU, 2015. "The Current State Of Knowledge In The Value Relevance Research Field," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 7, pages 13-20, April.
    2. Allan Hodgson & Mark Russell, 2014. "Comprehending Comprehensive Income," Australian Accounting Review, CPA Australia, vol. 24(2), pages 100-110, June.
    3. Kimouche Bilal, 2021. "Persistence and Predictive Ability of Earnings: Evidence from France and the UK," Economics and Business, Sciendo, vol. 35(1), pages 190-200, January.
    4. Marhaendra Kusuma & Diana Zuhroh & Prihat Assih & Grahita Chandrarin, 2021. "The Effect of Net Income and Other Comprehensive Income on Future¡¯s Comprehensive Income With Attribution of Comprehensive Income as Moderating Variable," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 12(3), pages 205-219, May.
    5. Pier Luigi Marchini & Carlotta D'Este, 2015. "Comprehensive Income: which potential effects on firms? performance evaluation and users? decision process?," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2015(2), pages 55-94.

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