The Informativeness of Micro and Macro Information During Economic Crisis and Non-Crisis Periods: Evidence from Europe

Forthcoming, European Accounting Review

44 Pages Posted: 17 Oct 2016 Last revised: 10 Jul 2019

See all articles by Leonidas C. Doukakis

Leonidas C. Doukakis

University of Lausanne, HEC

Dimitrios C. Ghicas (Gikas)

Athens University of Economics and Business - Department of Accounting and Finance

Georgia Siougle

Athens University of Economics and Business - Department of Accounting and Finance

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: July 8, 2019

Abstract

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 sixteen 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.

Keywords: economic crisis; micro and macro information; profitability prediction; stock market valuation

JEL Classification: E00, E01, G14, M41

Suggested Citation

Doukakis, Leonidas C. and Ghicas (Gikas), Dimitrios C. and Siougle, Georgia and Sougiannis, Theodore, The Informativeness of Micro and Macro Information During Economic Crisis and Non-Crisis Periods: Evidence from Europe (July 8, 2019). Forthcoming, European Accounting Review. Available at SSRN: https://ssrn.com/abstract=2853267 or http://dx.doi.org/10.2139/ssrn.2853267

Leonidas C. Doukakis

University of Lausanne, HEC ( email )

Unil Chamberonne, Batiment Anthropole
Lausanne, 1015
Switzerland

Dimitrios C. Ghicas (Gikas)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Georgia Siougle

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Theodore Sougiannis (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0555 (Phone)
217-244-0902 (Fax)

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