Aggregate earnings informativeness and economic shocks: international evidence

Abstract

Our study proposes the usage of aggregate earnings to forecast future GDP growth. Using empirical analyses with global quarterly data, we investigate whether aggregate-level profitability drivers, which are components of aggregate earnings, are relevant for forecasting GDP growth. After confirming that aggregate-level profitability drivers are useful for forecasting future GDP growth worldwide, we show that considering the effects of crises improves the forecast model of GDP growth. In addition, we suggest that predicting GDP growth using aggregate-level profitability drivers is relevant for stock valuation in developed countries, but not in emerging countries.

Negative aggregate accounting earnings and gross domestic product: A perspective of conditional accounting conservatism at the macroeconomic level

“…Moreover, aggregate profitability is valuable for forecasting GDP growth. Nonetheless, utilizing these drivers in predicting GDP growth is pertinent for share valuation in developed countries but not in developing countries (Yoshinaga & Nakano, 2023).…”

“…undertaken not only at the firm level but has also extended to encompass aggregate and macroeconomic levels. Studies at aggregate and macroeconomic levels are driven by the "micro-to-macro" research stream focusing on the usefulness of accounting earnings at the macroeconomics level to predict GDP growth (Huang, 2015;Konchitchki & Patatoukas, 2014a;Konchitchki & Patatoukas, 2014b;Lalwani & Chakraborty, 2020;Min-Ho & Jeong, 2022;Sumiyana et al, 2019;Wang et al, 2015;Yoshinaga & Nakano, 2023). Evidence documenting the existence of conditional accounting conservatism at both the aggregate and macroeconomic levels is presented by Lim and Zheng (2014), Crawley (2015), Laurion and Patatoukas (2016), as well as Atmini (2019).…”

“…Specifically, regarding the relationship to GDP, researchers also develop arguments based on the income approach, one of the GDP estimation approaches (Nallareddy & Ogneva, 2017). Previous studies provide empirical evidence supporting the association between earnings and GDP in the context of developed and developing countries (Huang, 2015;Konchitchki & Patatoukas, 2014a;Konchitchki & Patatoukas, 2014b;Lalwani & Chakraborty, 2020;Min-Ho & Jeong, 2022;Sumiyana et al, 2019;Wang et al, 2015;Yoshinaga & Nakano, 2023).…”

Determinants of Change of Board of Directors in Transportation Sector Companies on the Indonesia Stock Exchange

“…At the corporate level, executive managers and the board of directors are responsible for the strategic success and financial success of a business (Barber, Ghiselli, Deale, & Whithem, 2009). Positive profit based on the effect of profitability at the aggregate level can affect the market reaction (Yoshinaga & Nakano, 2021).…”