CONNECTING MICRO AND MACRO: THE IMPACT OF MACROECONOMIC NEWS ON MANAGEMENT FORECASTING

Abstract

This paper explores the relationship between macroeconomic news and management forecast in the context of macro-accounting. Based on quarterly financial data from the COMPUSTAT database and macro forecasts from the website of the Philadelphia Fed, the study finds a positive relationship between the extent to which a company's earnings move in concert with GDP and the likelihood of issuing management forecasts. These findings contribute to the literature on macro-accounting by showing how companies are not isolated from macroeconomic conditions. The results suggest that companies whose earnings show more correlation with macroeconomics are more likely to offer management forecasts, as managers can blame the wrong forecast of macro news rather than firm-specific forecasts. The analysis also identifies bellwether firms that have high macroeconomic information content or are connected to many other firms in the economy. The study concludes that the industries that are most closely correlated with GDP are those in the aircraft sector, while tobacco products have the highest average coefficient, followed by beer and liquor, non-metallic, aircraft and petroleum, and natural gas sectors.