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This study investigates the predictive power of aggregate corporate earnings and their four components for future GDP growths. It splits aggregate earnings into operating and non-operating incomes as they have different degrees of permanence. It also splits aggregate earnings into operating cash flows and accruals since earnings management affects them distinctively. This study finds aggregate earnings, operating income, operating cash flows, and accruals as predictors for oneand two-years-ahead GDP growths. However, it does not find such predictive power for aggregate non-operating income. Furthermore, this study splits the research sample based on macroeconomic development level and documents how aggregate earnings have predictive power over the longer horizon in developed countries, while aggregate non-operating income is a good predictor only in developing countries. Meanwhile, when splitting the sample based on earnings quality degree, this study demonstrates that the predictive power of aggregate accruals in a high earnings quality subsample is higher than in the low one. In the context of high (low) earnings quality, the predictive power of aggregate accruals is higher (lower) than that of operating cash flows. Overall, besides supporting previous studies' findings, this study also discovers that corporate earnings components are excellent predictors for future GDP growths. JEL Classification: M21, O16, P44

This study investigates the relationship between the aggregate of accounting earnings and the future Gross Domestic Product (GDP) differentiating between developed and developing countries. This study employs data on Asian, African, and Pacific countries along with their capital market in the period of 1989-2015. More specifically, it investigates the informativeness of aggregate accounting earnings as a predictor of macroeconomic growth. It finds evidence that the aggregate of accounting earnings is a predictor of future GDP growth. It also shows that the informativeness of accounting earnings aggregate is not only for the capital market's level but also the macroeconomic level. This study argues that the informativeness of accounting earnings can be used to predict the macroeconomy, but only for those developed countries whose earnings growth is positive. On the contrary, this study suggests that the aggregate of accounting earnings in Asian and African developing countries cannot be used to predict future GDP growth. In other words, the aggregate of accounting earnings from developing countries does not contain similar properties for predicting future GDP growth as compared to those in developed countries.

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This study develops a new return model with respect to accounting fundamentals. The new return model is based on Chen and Zhang (2007). This study takes into account theinvestment scalability information. Specifically, this study splitsthe scale of firm’s operations into short-run and long-runinvestment scalabilities. We document that five accounting fun-damentals explain the variation of annual stock return. Thefactors, comprised book value, earnings yield, short-run andlong-run investment scalabilities, and growth opportunities, co associate positively with stock price. The remaining factor,which is the pure interest rate, is negatively related to annualstock return. This study finds that inducing short-run and long-run investment scalabilities into the model could improve the degree of association. In other words, they have value rel-evance. Finally, this study suggests that basic trading strategieswill improve if investors revert to the accounting fundamentals.Keywords: accounting fundamentals; book value; earnings yield; growth opportuni­ties; short­run and long­run investment scalabilities; trading strategy;value relevance