Externalities of Accounting Disclosures: Evidence from the Federal Reserve
Forthcoming, The Accounting Review
50 Pages Posted: 22 May 2018 Last revised: 28 Mar 2023
Date Written: October 27, 2022
Abstract
This study provides the first empirical evidence that the Federal Reserve (the Fed) systematically retrieves micro-level accounting reports to aid its understanding of the state of the macroeconomy. Using unique data identifying the Fed’s direct access of corporate SEC filings, we show that the Fed tracks firms that are bellwethers and industry leaders, or that can engender systemic risk. The qualitative information in the Fed-accessed periodic reports explains the Fed’s GDP growth forecasts for up to four quarters, after controlling for contemporaneous aggregate earnings and other available economic information. However, professional forecasts fail to incorporate such qualitative accounting information. In addition, this qualitative information is reflected in the tone of the ensuing FOMC meeting discussions as well as in Fed forecasts of key macro demand and supply factors. Overall, our evidence suggests important externalities of micro-level accounting reports, especially qualitative disclosures, on the central bank’s macroeconomic forecasts and, by extension, monetary policy.
Keywords: Disclosure; Qualitative Information; SEC Filings; Externalities; Federal Reserve; Economic Forecasts
JEL Classification: E58, G20, M41, M45
Suggested Citation: Suggested Citation