The Usefulness of Income Statement Components: Empirical Evidence from Palestine Exchange (PEX) رسالة ماجستير

Abstract

This thesis presents evidence from the Palestine Exchange regarding the relative information content of five competing performance indicators: Gross Profit, Net Income from Operations, Income from Continuing Operations, Earnings, and Comprehensive Income. The sample included industrial and service corporations, with secondary data collected from 2015 to 2024, resulting in a total of 130 firm-years observations. The descriptive-analytical approach was employed by gathering panel data from financial reports and the Palestine Exchange. Stock returns (R) were used as the dependent variable to evaluate the strength of these indicators. Various econometric tests were conducted using SPSS and Eviews, including descriptive statistics, correlation matrix, Ordinary Least Squares (OLS) regression analysis, diagnostic tests of OLS assumptions, Random Effect (RE) and Fixed Effect (FE) Models, Hausman Test for Selecting RE or FE, Akaike Information Criterion, and Schwarz Criterion/Bayesian Information Criterion (BIC) for model selection. Regression analysis assumptions, such as normal distribution, multicollinearity, and error independence, were found to be met. The study demonstrated the usefulness of all five tested performance indicators, with Net Income from Continuing Operations showing the highest relevance, followed by Comprehensive Income, Earnings, Net Income from Operations, and Gross Profit. These findings provide valuable insights to help users make informed decisions. Recommendations include applying this study to the Palestinian financial and investment sectors, as well as other markets in the Middle East, where evidence is lacking. Palestinian investors are advised to consider these results when using accounting performance indicators for decision-making purposes. Additionally, it is recommended that the Palestine Exchange require the disclosure of calculated figures per share for the performance indicators outlined in this study to aid in interpreting stock prices within the Palestinian context.