School of Accountancy Faculty Publications

Aggregate earnings growth, credit market distress, and future real U.S. GDP and GDI growth

Document Type

Article

Publication Date

9-1-2026

Abstract

We examine whether aggregate earnings growth (AEG) and the excess bond premium (EBP) jointly forecast future real economic activity, measured by real GDP (RGDP) and real gross domestic income (RGDI). Using quarterly U.S. data from 1982Q3 to 2023Q4, we find that AEG positively predicts future RGDP and RGDI, consistent with AEG capturing firms' expectations about future cash flows and profitability. In contrast, EBP negatively predicts future real activity, consistent with EBP reflecting tighter credit market conditions and higher required returns. Additional analyses show that the predictive association between AEG and future real activity varies with credit conditions captured by EBP, with the association becoming weaker when EBP is high. This evidence suggests that financial conditions influence the extent to which earnings-based signals translate into subsequent economic outcomes. Structural vector autoregressions further support this interpretation by showing that EBP shocks are followed by declines in real activity, whereas AEG shocks are associated with expansionary effects. Overall, our findings integrate macro-accounting and macro-finance perspectives by showing that earnings-based signals and credit market conditions provide complementary information about future real economic activity.

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Publication Title

Journal of Accounting and Public Policy

DOI

10.1016/j.jaccpubpol.2026.107468

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