Financial Statements and Macroeconomic Dynamics

Davide Pettenuzzo, Riccardo Sabbatucci and Allan Timmermann

No 19497, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: What do companies' 10-Q filings reveal about the state of the macro economy and do specific accounting variables contain particularly relevant information? To address these questions, we analyze the lead-lag patterns of more than twenty accounting variables in relation to aggregate economic activity. We develop new daily corporate account business activity indices that aggregate firm-level accounting information while controlling for shifts in the composition of announcers and reducing firm-specific noise. Our new indices show that firm liquidity becomes significantly lower while corporate debt grows significantly faster several months prior to recessions, and thus can be used as leading indicators. Conversely, operations, earnings and profitability measures tend to be significantly lower after recessions, suggesting they are mostly lagging, pro-cyclical indicators of economic activity.

Date: 2024-09
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