Macroeconomic Consequences of Accounting: The Effect of Accounting Conservatism on Macroeconomic Indicators and the Money Supply

Macroeconomic effects of aggregate accounting conservatism: A cross‐country analysis

“…() find that corporate capital allocation decisions are affected by the timely recognition of economic losses across countries. Two studies—Nallareddy and Ogneva () and Crawley ()—investigate the macro‐level impact of conservatism in the United States. Nallareddy and Ogneva () find aggregate accounting factors (including conservatism) are useful in predicting revisions to macroeconomic indicators.…”

“…Nallareddy and Ogneva () find aggregate accounting factors (including conservatism) are useful in predicting revisions to macroeconomic indicators. Crawley () finds that aggregate profits and gross domestic product estimates are relatively more sensitive to bad news than good news and that accounting conservatism has a significant impact on monetary policy. Among other cross‐country studies, Li and Shroff () find that high‐information‐uncertainty industries have higher growth rates in countries with superior financial reporting quality (of which conservatism is one dimension).…”

“…Second, our study also extends the literature on the macroeconomic effects of firms’ reporting and disclosure behavior. Crawley () documents the existence of aggregate conditional conservatism in the United States and finds that it is significantly associated with the Federal Reserve's monetary policy actions. He asserts that accounting conservatism could potentially impact important macroeconomic indicators.…”

“…He asserts that accounting conservatism could potentially impact important macroeconomic indicators. Motivated by Crawley (), we investigate whether aggregate conditional and unconditional conservatism impact economic growth. We hypothesize that conditional conservatism positively influences economic growth by facilitating efficient resource allocation in the economy.…”

From low-quality reporting to financial crises: Politics of disclosure regulation along the economic cycle

“…No less surprising is that accounting numbers are the primary source of information used for valuation and national growth accounting, and may be closely linked to aggregate fluctuations (Ball et al, 2009;Balakrishnan, 2009;Crawley, 2009;Jorgensen et al, 2009;. In this area, several classic papers have studied the informational determinants of business cycles and credit market crises (Bernanke and Gertler, 1988;Kiyotaki and Moore, 1997); however, the quality of the information available in the marketplace is usually taken as exogenous.…”