Effects Of Comprehensive Income On ROE In A Context Of Crisis: Empirical Evidence For IBEX-35 Listed Companies (2004-2008)

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Francisco Sousa Fernandez
María Mercedes Carro Arana


ROE (Comprehensive Income), ROE (Net Income), SFAS 130 by the FASB, IAS 1 by the IASB, IBEX-35 Listed Companies, Context of Crisis


Comprehensive income is becoming increasingly important as an indicator of corporate performance at an international level [SFAS 130 by the FASB (1997) and NIC 1 by the IASB, revised in 2007, among others]. Given this importance, this paper intends to assess its impact on the Return on Equity (ROE), as opposed to the more traditional net income, for the period 2004-2008 for the select group of the Spanish IBEX-35 listed companies. Moreover, working on this period will also allow us to verify the incidence of comprehensive income on the ROE within a context of economic crisis, especially for the year 2008, with a large recession and steep drops in the stock markets. For this empirical study, we took as reference the pertinent information disclosed in the Consolidated Annual Reports of these listed companies, formulated pursuant to the IFRS by the IASB, especially pursuant to IAS 1.The non-parametric Wilcoxon Signed-Rank Test was used to perform the corresponding statistic comparisons, as the variables in certain years did not conform to normalcy. The results of our paper show a statistically significant impact of the ROE calculated pursuant to comprehensive income as opposed to the ROE determined pursuant to the net income. This was evidenced for three of the five years that were studied, especially for 2008, when there was a spectacular decline in the ROE calculated pursuant to the comprehensive income as opposed to that calculated pursuant to the net income. We consider this could be a contribution to the international debate regarding the need to include other measurements of corporate performance that are broader than the traditional net income in certain ratios of the fundamental analysis. This could represent the basis for adopting financial decisions that are much more in tune with the reality of the market.


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