The Role of Comprehensive Income (CI) as Financial Performance Predictor : Panel Evidence from Italy

The aim of this study is to investigate whether the comprehensive income (CI) and its individual components are useful in assessing the future cash flows for Italian listed companies. In addition, we verify whether the recent requirement of International Accounting Standard (IAS) 1 (r2011) of providing the other comprehensive income (OCI) separates in two sub-totals (recycling and non-recycling items groups) is useful to explain the expected cash flows. We consider a sample of 121 Italian non-financial companies listed on the Italian Stock Exchange for the testing period of 2008-2011, employing a fixed-effect regression model, and we test the relationship between thechanges in the variables considered and not the relative absolute value reducing, in this way, the risk of not grasping a report if the independent variable and the response variable do not have the same sign. Our results stress that CI and the two new sub-aggregates are not relevant to explain future cash flows, while net income (NI) and OCI as a whole seem to be more relevant to make explicit the future financial position. The study contributes, as a sort of post-implementation review, to the current debate on the ability of CI to predict the future cash flows and on the real usefulness of the CI and the sub-aggregate identified by the IAS 1 revised as well