The informational role of aggregate accounting earnings and their components in predicting GDP growth – evidence from Korea

Min-Ho Son and Kyunbeom Jeong

Cogent Business & Management, 2022, vol. 9, issue 1, 2096800

Abstract: Research on the information value of accounting data has been mainly conducted from the perspective of individual companies and the capital market. However, in recent years, the area has been expanding to an aggregate perspective and the analysis of the relationship with the macro economy. Among them, research on the relationship between aggregate accounting earnings and GDP is drawing special attention. Studies on this have also focused mainly on identifying the relationship between gross accounting net income and GDP growth rate itself. It is difficult to find an in-depth analysis of the source and path of aggregate accounting earnings exerting predictive power as a leading indicator of GDP growth. This study tries to contribute to deepen and expand an accounting research flow related to aggregate accounting earnings by investigating what information factors of aggregate accounting earnings and how the information factors of those act, for companies listed in the Korea Stock Exchange. To this end, this study divides the aggregate accounting earnings and GDP growth rate into sub-elements, and then checks the existence and working path of predictive power through regression analysis. As a result, we find that aggregate accounting earnings have predictive power over the future GDP growth rate, and it is confirmed that the combined effect between the future information of aggregate accruals and the historical information of aggregate operating cash flow is the source of predictive power. In addition, the predictive power for GDP growth rate of aggregate accounting earnings exert through both consumption and investment paths, and the investment path consistently shows higher predictive power for GDP growth rate than consumption path. Through these results, it is expected to increase interest and understanding in enhancing the connection between the national account system and corporate accounting, and to highlight the usefulness of accounting information as basic data for macroeconomic statistics and policy proposals.

Date: 2022
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DOI: 10.1080/23311975.2022.2096800

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