TY - JOUR
T1 - The Informativeness of Micro and Macro Information During Economic Crisis and Non-Crisis Periods
T2 - Evidence from Europe
AU - Doukakis, Leonidas
AU - Ghicas, Dimitrios C.
AU - Siougle, Georgia
AU - Sougiannis, Theodore
N1 - Funding Information:
The authors acknowledge financial support from the Research Center of the AUEB. We appreciate the helpful comments of Michel Magnan (editor) and two anonymous reviewers. We are grateful to Louis Chan, Giovanni-Battista Derchi, Dimosthenis Hevas, Alexis H. Kunz, Hunter Land, Karl Schuhmacher, Efthymios Tsionas, Oktay Urcan, Zach Wang, Georgios Zanias, seminar participants at Manchester Business School, Essex Business School and HEC Lausanne as well as to conference participants at the 39th EAA Annual Congress in Maastricht, the 13th Biennial Athenian Policy Forum Conference in Athens, the 2016 American Accounting Association Annual Meeting in New York and the 12th workshop on European Financial Reporting in Fribourg for helpful comments and suggestions. We also thank Stavros Panagopoulos for excellent research assistance.
Publisher Copyright:
© 2019, © 2019 European Accounting Association.
PY - 2020/5/26
Y1 - 2020/5/26
N2 - We investigate whether and how the information content of reported profitability and macroeconomic expectations changes when the state of the economy changes from non-crisis to crisis conditions. For this, we analyze data from 16 European countries over the period 2005–2015. We find macroeconomic expectations to be useful in predicting future profitability only during non-crisis periods and mainly for firms facing elastic demand for their products and services and firms without sequential losses. Current profitability as well as its cash flow and accruals components are much more informative predictors of future profitability than macroeconomic expectations in both non-crisis and crisis periods. Market pricing tests suggest that macroeconomic expectations are not informative and thus not priced by market participants during crisis periods and support efficient pricing of current profitability under both non-crisis and crisis periods. However, it is the cash flow component of profitability that is efficiently priced under both economic conditions, while the accrual component of profitability is mispriced during crisis periods. Overall, we provide evidence that reported accounting information is much more useful to stock market investors than macroeconomic expectations in both non-crisis and crisis economic periods.
AB - We investigate whether and how the information content of reported profitability and macroeconomic expectations changes when the state of the economy changes from non-crisis to crisis conditions. For this, we analyze data from 16 European countries over the period 2005–2015. We find macroeconomic expectations to be useful in predicting future profitability only during non-crisis periods and mainly for firms facing elastic demand for their products and services and firms without sequential losses. Current profitability as well as its cash flow and accruals components are much more informative predictors of future profitability than macroeconomic expectations in both non-crisis and crisis periods. Market pricing tests suggest that macroeconomic expectations are not informative and thus not priced by market participants during crisis periods and support efficient pricing of current profitability under both non-crisis and crisis periods. However, it is the cash flow component of profitability that is efficiently priced under both economic conditions, while the accrual component of profitability is mispriced during crisis periods. Overall, we provide evidence that reported accounting information is much more useful to stock market investors than macroeconomic expectations in both non-crisis and crisis economic periods.
KW - Economic crisis
KW - Micro and macro information
KW - Profitability prediction
KW - Stock market valuation
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U2 - 10.1080/09638180.2019.1642221
DO - 10.1080/09638180.2019.1642221
M3 - Article
AN - SCOPUS:85085237950
SN - 0963-8180
VL - 29
SP - 467
EP - 492
JO - European Accounting Review
JF - European Accounting Review
IS - 3
ER -