Externalities of Accounting Disclosures: Evidence from the Federal Reserve

Forthcoming, The Accounting Review

50 Pages Posted: 22 May 2018 Last revised: 28 Mar 2023

See all articles by Edward Xuejun Li

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy

Gary Lind

University of Pittsburgh - Joseph M. Katz Graduate School of Business

K. Ramesh

Rice University

Min Shen

City University of New York (CUNY) - Stan Ross Department of Accountancy

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

Li, Edward Xuejun and Lind, Gary and Ramesh, K. and Shen, Min, Externalities of Accounting Disclosures: Evidence from the Federal Reserve (October 27, 2022). Forthcoming, The Accounting Review, Available at SSRN: https://ssrn.com/abstract=3179251 or http://dx.doi.org/10.2139/ssrn.3179251

Edward Xuejun Li

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3235 (Phone)

Gary Lind

University of Pittsburgh - Joseph M. Katz Graduate School of Business ( email )

3950 Roberto Clemente Drive
Pittsburgh, PA 15260
United States

K. Ramesh (Contact Author)

Rice University ( email )

236 McNair Hall
Jones Graduate School of Business
Houston, TX 77005
United States
713.348.5380 (Phone)
713.348.6296 (Fax)

Min Shen

City University of New York (CUNY) - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3230 (Phone)

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