The Information Content Of Aggregate Accounting Earnings And Its Predictability For Macro Economy

As Ball&Brown(1968)introduces the positive research paradigm into accounting field,the information in accounting earnings has been the essential question in positive accounting research.Based on this basic point,these papers in past thirty years develop many classic topics,such as accrual anomaly、accounting conservatism、accounting comparability and accounting information quality,and almost all t.he positive research focusing the capital market relies on its foun dational paradigms.For most papers in accounting filed,their tests mainly focus on earnings-price relation in the firm level,and the research vision narrowly concentrate on the capital market.But Kothari et al(2006)finds that the relation between aggregate accounting earnings in the market level and the market return shows negatively correlation or not significantly,which contradicts with the tremendous empirical evidence of positive correlation between earnings and price relation.Kothari et al(2006)points out the reason that in aggregate level,the information mainly contains the risk factors in denominator term,and the earnings in firm level mainly reflect the cash flow news in molecular term.Following this idea,subsequent research finds that aggregate accounting earnings contain the information about future GDP growth and inflation fluctuation,which inspires the discussion about the information and predictability of aggregate accounting earnings.In china,seldom papers have pay attention to this topic called marco-accounting,while the capital market in china has been experienced tremendous increasing and expansion from the 1990s Because of many shortcomings in institution constructing of market and pricing efficiency,the stock market still isn’t competent for serving as a barometer of macro economy.So the research about the information of aggregate accounting earnings,could help to think outside the box of firm level empirical evidence,and enable us to test the function of earnings in the market levelBy constructing the aggregate accounting earnings based on the financial data of listed companies in Shang Hai and Shen Zhen market from 2003 to 2016,this research tests the relation between the fluctuation of aggregate accounting earnings and market return,the result show aggregate accounting earnings significantly negative correlates or not significantly correlates with market return,extraordinary different from the positive correlation in firm level,and this phenomenon still exists in industry level。The results consists with Kothari 等(2006)that the aggregate accounting earnings in market level contain information that different with firm level.Kothari et al(2006)points out that the aggregate accounting earnings contain more information about risk factors,and the earning in firm level contain more information about cash flow news.Further research shows:(1)we construct the aggregate accounting variables by the property rights,the aggregate accounting earnings of non-state owned enterprises negatively correlates with future market return,while the correlation coefficient between the aggregate accounting earnings of state owned enterprises and future market return show no significant.(2)we construct the aggregate accounting variables by the size,the aggregate accounting earnings of small companies negatively correlates with future market return,while the correlation coefficient between the aggregate accounting earnings of large enterprises and future market return show no significant.So the earning of non-state owned and small enterprises might contain more idiotsynprasy information,which causes the aggregate earnings show more significance.If the aggregate earnings contain information about risk factors,we may find the substance information about macro economy.Followin g th is idea,the predic tability of aggregate earnings gets much attention,several papers has find the empirical evidence,that the aggregate earnings could predict future GDP growth and inflation fluctuation.But most papers just test the correlation between aggregate earnings and macro economy variables.However this research try to combine the basic accounting properties and economy theory for exploration the function path of the predictability of aggregate earnings.In the predictability for GDP growth of aggregate earnings,Based on the intrinsic logic of national economic accounting system and accounting conservatism principle,we decomposes earnings into assets impairment losses and adj usted accounting earnings,and investigates the paths of forecasts of future GDP growth by accounting information.Based on the aggregately quarter data of Shanghai and Shenzhen A-share companies from 2003 to 2016,this paper confirms that both AIL and AAE could predict future GDP growth,but both predictability follows different paths.By adopting the mediating effect model,the macro-economic risk has a significantly mediating effect in the prediction process of AIL,but not significant in the prediction process of AAE,confirming the "risk perception" path.Meanwhile,the reverse regression tests show that the predictability of AAE mainly comes from its mathematic correlation with operating surpluses,and the correlation of AIL and GDP growth is not affected by operating surpluses,which is consistent with the "earnings conduction" path.Furthermore,we find that the negative relation b etween AIL and future GDP growth is stronger during economic downturn period than during economic upswing period,while the prediction function of AAE has no difference during economic downturn or upswing periods.In the predictability for inflation of aggregate earnings,based on the Chinese listed companies,the results show that aggregate quarterly earnings growth is significantly positive correlated with the future quarterly CPI and PPI change,which is still exists after controlling for economic growth and currency supply.Subsequent studies find that earning changes in the micro level indicates the future investing and financing demand,earning changes enhance the positive relation between the Macro aggregate demand and CPI growth,but not significant in the relation between the Macro aggregate demand and PPI growth.These results confirm the predictability of accounting information for future inflation,and the predictability for CPI growth comes from the information about Macro aggregate demand in aggregate earnings,which is shown as "demand conduction",but th is is n ot sup.ported b y the test for PPI.Th.is paper extends the literature on the usefulness of accounting information,and provides significant references for the analysis and prediction of macro-economic.