Business Cycles and the Relation between Security Returns and Earnings

Marilyn F. Johnson
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Marilyn F. Johnson: University of Michigan

Review of Accounting Studies, 1999, vol. 4, issue 2, No 2, 93-117

Abstract: Abstract This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity.

Keywords: Growth Rate; Economic Activity; Business Cycle; Public Finance; Security Return (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1023/A:1009649018325

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