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Abstract
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Article Information:
Is Net Income after Tax a Better Measure of Firm Performance than Taxable Income?
Bassam Mahmoud Abu-Abbas
Corresponding Author: Bassam Mahmoud Abu-Abbas
Submitted: 2011 January, 21
Accepted: 2011 February, 14
Published: 2011 February, 15 |
Abstract:
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Jordan Securities Commission Disclosure Directives requires that listed corporations in Amman
Stock Exchange to report both taxable income and income after tax in their financial statements. This study
examines which components of income statement, taxable income or net income after tax, is a better measure
of firm performance. In addition, the study tests the association between stock returns and taxable income and
net income after tax. The study uses the Vuong's likelihood ratio test to determine whether or not there are
significant differences in the adjusted R2 between taxable income's model and net income after tax' model. Data
from Amman Stock Exchange during the period 1999-2008 are used. Consistent with prior literature, the results
show that taxable income and net income after tax are value relevant in determining stock returns. In addition,
the findings indicate that taxable income and net income after tax each has the same ability to measure firm
performance. These results provide a useful contribution to the literature because it strengthens the evidence
that both taxable income and net income after tax have same ability to measure firm performance. In other
words, each can substitute the other.
Key words: Firm performance, net income after tax, stock returns, taxable income, , ,
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Abstract
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Cite this Reference:
Bassam Mahmoud Abu-Abbas, . Is Net Income after Tax a Better Measure of Firm Performance than Taxable Income?. Asian Journal of Business Management, (1): 23-31.
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ISSN (Online): 2041-8752
ISSN (Print): 2041-8744 |
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