Aggregate Accounting Data and the Prediction of Credit Risk

Dimitrios Kousenidis (), Anestis C. Ladas and Christos I. Negkakis
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Anestis C. Ladas: Department of Accounting and Finance, University of Macedonia, Thessaloniki, Greece
Christos I. Negkakis: Department of Accounting and Finance, University of Macedonia, Thessaloniki, Greece

The International Journal of Accounting (TIJA), 2019, vol. 54, issue 01, 1-30

Abstract: A recent area of accounting research concerns the ability of changes in aggregate earnings to predict various macroeconomic fundamentals. We extend this line of research and examine whether changes in aggregate earnings convey information regarding the changes in future sovereign risk, which is considered a proxy for changes in aggregate risk. The results of the study indicate that aggregate earnings changes have predictive ability for sovereign credit risk. This result persists even after controlling for liquidity and indicators of macroeconomic imbalance, as well as under alternative research specifications. We also find that in some of the research specifications, future sovereign credit risk is affected by earnings management. In general, our results point towards the presence of significant information in earnings that is related to future sovereign risk.

Keywords: Aggregate accounting data; sovereign credit risk (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S109440601950001X

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