Is the U.S. Unique? International Evidence on the Aggregate Earnings-Returns Association

49 Pages Posted: 18 May 2018 Last revised: 19 Jul 2018

See all articles by Lindsey A. Gallo

Lindsey A. Gallo

University of Michigan, Stephen M. Ross School of Business

Rebecca N. Hann

University of Maryland - Robert H. Smith School of Business

Congcong Li

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

Viktoriya Zotova

Georgetown University - Department of Accounting and Business Law

Date Written: July 2018

Abstract

We exploit differences in institutional and macroeconomic environments to shed light on what drives variation in the aggregate earnings-returns relation over time within the U.S. and across countries. We find that both intertemporal and cross-country variation in the aggregate earnings-returns association are driven primarily by two factors, namely, the monetary policy news conveyed in aggregate earnings and the market reaction to that news, which suggest that the strength of the discount rate news channel plays an important role in explaining the aggregate earnings-returns relation both within and outside of the U.S. We further find that institutional characteristics have a significant effect on the information content of aggregate earnings and hence on the aggregate earnings-returns association—aggregate earnings are more informative about policy changes in countries with stronger investor protection and greater accounting transparency. Overall, our study provides new evidence on what drives the aggregate earnings-returns relation across the globe.

Keywords: Aggregate Earnings; Monetary Policy; Stock Returns; Investor Protection, International Accounting

JEL Classification: E44; E52; G12; G38; M41

Suggested Citation

Gallo, Lindsey A. and Hann, Rebecca N. and Li, Congcong and Zotova, Viktoriya, Is the U.S. Unique? International Evidence on the Aggregate Earnings-Returns Association (July 2018). Available at SSRN: https://ssrn.com/abstract=3179037 or http://dx.doi.org/10.2139/ssrn.3179037

Lindsey A. Gallo (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
7347648243 (Phone)

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

Viktoriya Zotova

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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