A0713
Title: Financial statements and macroeconomic dynamics
Authors: Allan Timmermann - UCSD (United States) [presenting]
Davide Pettenuzzo - Brandeis University (United States)
Riccardo Sabbatucci - Stockholm School of Economics and Wharton (Sweden)
Abstract: What do companies' filings reveal about the state of the macro economy, and do specific accounting variables contain particularly relevant information? To address these questions, the lead-lag patterns of more than twenty accounting variables are analyzed in relation to aggregate economic activity. New daily corporate account business activity indices are developed, which aggregate firm-level accounting information while controlling for shifts in the composition of announcers and reducing firm-specific noise. The 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.
