Aggregate Tone and Gross Domestic Product

Abstract

We examine whether earnings announcement textual tone, aggregated across individual publicly traded firms, helps to predict future GDP growth. Prior literature shows changes in aggregate accounting earnings are useful in predicting future economic growth, but only when aggregate earnings changes are negative. Because conservative accounting rules limit managers’ ability to communicate positive news in a timely manner, we look to corporate narrative tone as a possible source of timely positive information disseminated by publicly traded firms. Our results show that aggregate tone is useful in predicting future economic growth, but only when the change in aggregate tone is positive. Our study contributes to prior literature by providing initial evidence on the link between qualitative accounting disclosure, accounting timeliness, and macroeconomic outcomes.