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Media type:
E-Article
Title:
Aggregate Financial Misreporting and the Predictability of U.S. Recessions and GDP Growth
Contributor:
Beneish, Messod D.;
Farber, David B.;
Glendening, Matthew;
Shaw, Kenneth W.
Published:
American Accounting Association, 2023
Published in:
The Accounting Review, 98 (2023) 5, Seite 129-159
Language:
English
DOI:
10.2308/tar-2021-0160
ISSN:
0001-4826;
1558-7967
Origination:
Footnote:
Description:
ABSTRACTThis study examines the incremental predictive power of aggregate measures of financial misreporting for recession and real gross domestic product (GDP) growth. We draw on prior research suggesting that misreporting has real economic effects because it represents misinformation on which firms base their investment, hiring, and production decisions. We find that aggregate M-Score incrementally predicts recessions at forecast horizons of five to eight quarters ahead. We also find that aggregate M-Score is significantly associated with lower future growth in real GDP, real investment, consumption, and industrial production. Additionally, our result that aggregate M-Score predicts lower real investment one to four quarters ahead partially accounts for why misreporting predicts recessions five to eight quarters ahead. Our findings are weaker when we use aggregate F-Score as a proxy for misreporting. Overall, this study provides novel evidence that aggregate misreporting measures can aid forecasters and regulators in predicting recessions and real GDP growth.JEL Classifications: M41.