Aggregate accounting research and development expenditures and the prediction of real gross domestic product |
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| Institution: | 1. Henry B. Tippie Research Chair in Accounting at the University of Iowa, 21 E. Market St., Iowa City, IA, USA;2. Assistant Professor in Accounting at the Colorado State University, 501 W. Laurel St., Fort Collins, CO, USA;1. Lynn Pippenger School of Accountancy, Muma College of Business, University of South Florida, 4202 East Fowler Ave., BSN 3403, Tampa, FL 33620, United States;2. Department of Accounting and Finance, Paul College of Business and Economics, University of New Hampshire, 11 Garrison Ave., Durham, NH 03824, United States;1. Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556, United States;2. Ohio University College of Business, Ohio University, Athens, OH 45701, United States;1. Dhaliwal-Reidy School of Accountancy, University of Arizona, 1130 E. Helen St., PO Box 210108, Tucson, AZ 85721, United States;2. LeBow College of Business, Drexel University, Philadelphia, PA 19104, United States;3. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, United States;1. Business School, Sungkyunkwan University, 25-2 Sungkyunkwan-ro, Jongno-gu, Seoul 03063, Republic of Korea;2. Department of Management, Korea National Open University, 86 Daehak-ro, Jongno-gu, Seoul 03087, Republic of Korea;3. Business School, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Republic of Korea;1. Krannert School of Management, Purdue University, United States;2. Neeley School of Business, Texas Christian University, United States;3. Wilber O. and Ann Powers College of Business, Clemson University, United States |
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| Abstract: | The role of accounting information for public policy making has received increased attention in recent years. Konchitchki and Patatoukas, 2014a, Konchitchki and Patatoukas, 2014b demonstrate that growth in aggregate accounting earnings can predict future growth in nominal and real Gross Domestic Product (GDP). We extend the micro to macro literature by decomposing earnings into the R&D and pre-R&D components. Using the Almon (1965) finite distributed lag model, we find that both components can predict future real GDP growth with different lead-lag structures. Importantly, this decomposition significantly increases the explanatory power of the predictive model using accounting information. Aggregate accounting R&D can predict real GDP through the personal consumption, business investment, and net export channels of GDP. Our study extends prior research on the forecasting usefulness of accounting information at the aggregate level and has practical implications for macro forecasting and for public policy making regarding innovative activities of publicly listed firms. |
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| Keywords: | Aggregate accounting numbers Research and development expenditures Gross domestic product Macroeconomic forecasting Distributed lag structures |
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