Another Look at the Macroeconomic Information Content of Aggregate Earnings: Evidence from the Labor Market

The Accounting Review, Forthcoming

57 Pages Posted: 28 Jun 2017 Last revised: 26 Jun 2020

See all articles by Rebecca N. Hann

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Congcong Li

Duquesne University - A.J. Palumbo School of Business Administration

Maria Ogneva

University of Southern California - Marshall School of Business

Date Written: June 26, 2020

Abstract

We examine the macroeconomic information content of aggregate earnings from the labor market’s perspective. We use insights from the labor economics literature to characterize the information contained in aggregate GAAP earnings and its components that is relevant for predicting aggregate job creation and destruction. Our results suggest that not only does aggregate earnings news convey information about future labor market aggregates, but its information content is incremental to other macroeconomic variables at near-term horizons. Further, the source of this information stems primarily from two earnings components: aggregate core earnings and special items. Shocks to core earnings signal persistent changes in economy-wide profitability that predict aggregate job creation up to four quarters ahead, while shocks to special items predict job destruction up to one quarter. Taken together, our results suggest that aggregate earnings contain useful information about future labor market conditions, with the nature of such information varying across earnings components.

Keywords: aggregate earnings, labor market, special items, job flows

JEL Classification: E37, E44, G17, G24, M41

Suggested Citation

Hann, Rebecca N. and Li, Congcong and Ogneva, Maria, Another Look at the Macroeconomic Information Content of Aggregate Earnings: Evidence from the Labor Market (June 26, 2020). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2993654 or http://dx.doi.org/10.2139/ssrn.2993654

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Congcong Li

Duquesne University - A.J. Palumbo School of Business Administration ( email )

Pittsburgh, PA 15282
United States

Maria Ogneva (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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