The Usefulness of Comprehensive Income to Investors Compared to the Net Income: an Empirical Study on listed Firms in the Egyptian Stock of Exchange

This study empirically investigates the usefulness of the mandatory reporting of comprehensive income in Egypt under the last Egyptian Accounting Standards (Revised EAS 1). The purpose of this research is to compare the usefulness of the comprehensive income compared to the net income for investors in the Egyptian stock market after the mandatory adoption of the revised EAS (1) in 2016. The usefulness of the comprehensive incomefor investors is tested by assessing the value relevance, persistence, predictability, and performance measurement of comprehensive income compared to the traditional net income. The sample consists of 169 observations of firms listed in the Egyptian Stock Market for the year 2017 and 157 observations of listed firms in year 2016. The results show the following evidence. The results provide evidence that both the Net income and the Comprehensive income are positively related to the share market prices of firms. However, the value relevance of net income is not significantly different from that of the comprehensive income. The results show that the net income is more value relevance to investors in the Egyptian Stock Market but the difference is not significant. Besides, the Foreign currency translate is the only component of the other comprehensive income which is incrementally value relevant once added to the net income. The other components of Comprehensive income Foreign currency translate, Available for sale securities, Asset revaluation, the Pension Funds and the other comprehensive income of Comprehensive income do not add any value to the investors in the Egyptian Market.
In addition, the results also provide evidence that both the Net income and the Comprehensive income are positively related to the future cash flows of the firms. The results indicate that the net income is a better predictor for future cash flows of the firms than the comprehensive income however the difference is insignificant. Besides, neither the comprehensive income nor the net income is persistent in case of Egyptian listed firms. As well as, the results also indicate that the Comprehensive income is better in measuring the firm’s performance than the net income however the difference is slight and insignificant. Accordingly, there is no strong evidence which support the assertion that one is superior to another.