COMPARING THE USEFULNESS OF NET INCOME VERSUS COMPREHENSIVE INCOME IN TERMS OF FIRM PERFORMANCE: BORSA ISTANBUL CASE

Authors : Merve Acar, Semra Karacaer

Pages : 97-118

Doi:10.18825/iremjournal.328968

View : 15 | Download : 9

Publication Date : 2017-12-29

Article Type : Research

Abstract :Based on the ongoing claims that comprehensive income measures financial performance better than net income, thus enhance the transperancy and usefulness of financial statements, International Accounting Standard No.1 (IAS 1) requires reporting comprehenive income in a primary and separate financial statement. From this point forth, we compare the usefullnes of comprehensive income with net income in terms of financial performance proxied by  stock price, stock market returns and operating cash flows. Using a sample of listed companies in Turkey, we find some evidence that comprehensive income is a better measurement than net income, especially explaining stock market price and market returns. However, the association between comprehensive income and stock market price is negative. In that sense, our findings are consistent with previous research that argue investors find the financial information in comprehensive income is more volatile, risky, transitory and incomplete than net income, resulting in decreased stock market price.
Keywords : Comprehensive Income, Net Income, Clean Surplus Accounting, Dirty Surplus Accounting