Informational Foundations for the Macroeconomic Role of Aggregated Accounting Disclosures

I show that, consistent with theory, the volume of business transactions increases during good economic states relative to bad (Veldkamp 2005). As more transactions are aggregated in financial reports, the precision of the macroeconomic signal in aggregated accounting information increases, so that accounting reports contain more precise macroeconomic information during good states of the economy when transaction volume is high than bad states when the volume is low (Van Nieuwerburgh and Veldkamp 2006). Lastly, the macroeconomic information dynamics of aggregate earnings follow economic theory: macro content grows throughout good states as agents become more confident and the information environment improves