The usefulness of comprehensive income in predicting future performance: Evidence from the developing market

Abstract

Based on the original study of Dhaliwal et al. (1999), this study examines empirically the usefulness of comprehensive income (CI) in predicting firms’ future performance comparing to net income (NI), using Jordanian firms listed in the Amman Stock Exchange (ASE) during the period 2010–2018. Two measures of company’ performance are employed, leading NI and cash flow from operation (CFO). We hypothesize that NI is more useful than CI in predicting future earnings and firm future CFO. Similarly, the empirical findings by Biddle and Choi (2006) also indicate that both measures NI and CI are significantly and positively associated with firm’s future performance measured by leading NI and CFO. However, the results show that NI is superior to CI in predicting future earnings and firm future CFO. These results hold for the alternative performance measures used in the analysis. Our findings also show a larger standard deviation for CI than NI indicating higher volatility of CI than NI. The superiority of NI is likely to be due the higher volatility of CI and the transitory nature of other comprehensive income (OCI) components included in CI but not included in NI. This study adds to the literature by examining the value relevance of NI and CI in an emerging market.