Firm Performance and Macro Forecast Accuracy

51 Pages Posted: 13 Jul 2018 Last revised: 14 Mar 2021

See all articles by Mari Tanaka

Mari Tanaka

Hitotsubashi University, Graduate School of Economics

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Joel David

University of Southern California

Maiko Koga

Bank of Japan

Date Written: June 2018

Abstract

Ever since Keynes’ famous quote about animal spirits, there has been an interest in linking firms’ expectations and actions. However, empirical evidence has been limited due to a lack of firm-level panel data on expectations and outcomes. In this paper, we build such a dataset by combining a unique survey of Japanese firms’ GDP forecasts with company accounting data for 25 years for over 1,000 large Japanese firms. We find four main results. First, firms’ GDP forecasts are positively associated with their employment, investment, and output growth in the subsequent year. Second, both optimistic and pessimistic forecast errors lower profitability. Third, while over-optimistic forecasts lower measured productivity, over-pessimistic forecasts do not tend to have an effect on productivity. Overall, these results are stronger for firms whose performance is more sensitive to the state of macroeconomy. We show that a simple model of firm input choice under uncertainty and costly adjustment can rationalize there results. Finally, larger and more cyclically sensitive firms make more accurate forecasts, presumably reflecting a higher return to accuracy for these firms. More productive, older, and bank-owned firms also make more accurate forecasts, suggesting that forecasting ability is also linked to management ability, experience, and governance. Collectively, our results highlight the importance of firms’ forecasting ability for micro and macro performance.

Suggested Citation

Tanaka, Mari and Bloom, Nicholas and David, Joel and Koga, Maiko, Firm Performance and Macro Forecast Accuracy (June 2018). NBER Working Paper No. w24776, Available at SSRN: https://ssrn.com/abstract=3210410

Mari Tanaka (Contact Author)

Hitotsubashi University, Graduate School of Economics ( email )

Naka 2-1
Kunitachi, Tokyo 186-8601
Japan

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joel David

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Maiko Koga

Bank of Japan ( email )

CPO Box 203
Tokyo, 100-91
Japan

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