Comprehensive Income Decision Correlation Studies

The Explain of Accounting Standard for Business Enterprises No.3waspublished by treasury department of China in June,2009. This file required that allpublic companies make other comprehensive income and gross amount ofcomprehensive income public. It is still worth being researched that whether decisionrelevance of the comprehensive income is better that of the net income. The decisionrelevance of the income information is reflected by the the ability of forecasting thecash flow in the future. If the revenue model of the comprehensive income is betterthan net income on the investment decision, the ability of it for forecasting the cashflow in the future is better.The research on the decision relevance of the comprehensive income in China isprimarily based on the premise of the effectiveness of capital market. According to theresearchers of China, whether the decision relevance of the comprehensive income isbetter than that of the net income should be compared between the comprehensiveincome, net income and share price. This research is short of the consideration aboutthe capital market and the current situation of investors. So the reliability of theconclusion still need further research.In view of current situation of the capital market, the study abandoned the stockprice or the stock return and select the cash flow. In consideration of the bigfluctuation of Chinese capital market and heavy investing demand of investors, theauthor constructed a short-term prediction model by use of successive periods ofaccounting income and the next period of cash flow from the point of view ofshort-term investing decision. Through the comparison of the predictive power for thefuture cash flow between comprehensive income and net income, the study illustratedwhether the comprehensive income is superior to the net income in the aspect ofinvestment decision.Through the analysis of the regression results,the study illustrate the relevancebetween comprehensive income and flow income in future was inferior to that between net income and the future cash flow, and the diversity was different amongdifferent industries. The disclosure of the other comprehensive income had a littledifference on the improvement of the relative between the net income and the futurecash flow, but the forecasting ability of other comprehensive income and net incomeon the structural disclosure was superior to the aggregated comprehensive income.Finally,the study demonstrated that, the decision relevance of the comprehensiveincome is inferior to that of the net income. The disclosure of the comprehensiveincome just regained the link between the balance sheet and the income statement,and reduced the room of the earnings management.