Negative accounting earnings and gross domestic product

Fabio B. Gaertner (), Asad Kausar and Logan B. Steele
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Fabio B. Gaertner: University of Wisconsin-Madison
Asad Kausar: American University
Logan B. Steele: Oregon State University

Review of Accounting Studies, 2020, vol. 25, issue 4, No 6, 1382-1409

Abstract: Abstract Konchitchki and Patatoukas Journal of Accounting and Economics 57 (1-2), 76–88, (2014a) show that aggregate accounting earnings growth predicts future nominal gross domestic product (GDP) growth and that professional macro forecasters do not fully incorporate the information contained in aggregate accounting earnings. Based on results from prior literature, which find that accounting earnings reflect bad economic news in a timelier manner than good news, we condition Konchitchki and Patatoukas’s GDP growth forecast model on the sign of earnings changes. We show that negative changes in aggregate earnings predict future GDP growth while positive changes in earnings do not. Furthermore, we show that professional macro forecasters underreact to the information contained in negative changes in aggregate earnings about future GDP growth. Additional tests suggest our findings are a result of conservative accruals in earnings.

Keywords: Aggregate earnings; Gross domestic product (GDP); Asymmetric timeliness; E00; E01; M41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11142-020-09536-x

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