This study investigates whether accotmting earnings can predict future Gross Domestic Product （GDP） growth within China＇s institutional settings. Konchitchki and Patatoukas （2014a） find that accounting earnings i...This study investigates whether accotmting earnings can predict future Gross Domestic Product （GDP） growth within China＇s institutional settings. Konchitchki and Patatoukas （2014a） find that accounting earnings is a significant leading indicator of GDP growth for the next three or four quarters. We conjecture, however, that earnings management would weaken such predictive power for accounting earnings because it distorts earnings from real corporate profit. As earnings of Chinese firms are more seriously manipulated than those of US firms, this study finds that earnings of Chinese listed firms can only predict GDP growth for a single quarter. We further decompose accounting earnings into operating cash flow and accrual earnings and find that operating cash flow which is less affected by earnings management has better predictive power for GDP over the longer horizon of the next three quarters, but accrual earnings can only predict GDP growth for the next quarter.展开更多
文摘This study investigates whether accotmting earnings can predict future Gross Domestic Product （GDP） growth within China＇s institutional settings. Konchitchki and Patatoukas （2014a） find that accounting earnings is a significant leading indicator of GDP growth for the next three or four quarters. We conjecture, however, that earnings management would weaken such predictive power for accounting earnings because it distorts earnings from real corporate profit. As earnings of Chinese firms are more seriously manipulated than those of US firms, this study finds that earnings of Chinese listed firms can only predict GDP growth for a single quarter. We further decompose accounting earnings into operating cash flow and accrual earnings and find that operating cash flow which is less affected by earnings management has better predictive power for GDP over the longer horizon of the next three quarters, but accrual earnings can only predict GDP growth for the next quarter.
