Inter-industry network structure and the cross-predictability of earnings and stock returns

Inter-industry network structure and the cross-predictability of earnings and stock returns We examine how the patterns of inter-industry trade flows impact the transfer of information and economic shocks. We provide evidence that the intensity of transfers depends on industries’ positions within the economy. In particular, some industries occupy central positions in the flow of trade, serving as hubs. Consistent with a diversification effect, we find that these industries’ returns depend relatively more on aggregate risks than do returns of noncentral industries. Analogously, we find that the accounting performance of central industries associates more strongly with macroeconomic measures than does the accounting performance of noncentral industries. Comparing central industries to noncentral ones, we find that the stock returns and accounting performance of central industries better predict the performance of industries linked to them. This suggests that shocks to central industries propagate more strongly than shocks to other industries. Our results highlight how industries’ positions within the economy affect the transfer of information and economic shocks. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Inter-industry network structure and the cross-predictability of earnings and stock returns

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-014-9286-7
Publisher site
See Article on Publisher Site

Abstract

We examine how the patterns of inter-industry trade flows impact the transfer of information and economic shocks. We provide evidence that the intensity of transfers depends on industries’ positions within the economy. In particular, some industries occupy central positions in the flow of trade, serving as hubs. Consistent with a diversification effect, we find that these industries’ returns depend relatively more on aggregate risks than do returns of noncentral industries. Analogously, we find that the accounting performance of central industries associates more strongly with macroeconomic measures than does the accounting performance of noncentral industries. Comparing central industries to noncentral ones, we find that the stock returns and accounting performance of central industries better predict the performance of industries linked to them. This suggests that shocks to central industries propagate more strongly than shocks to other industries. Our results highlight how industries’ positions within the economy affect the transfer of information and economic shocks.

Journal

Review of Accounting StudiesSpringer Journals

Published: Apr 29, 2014

References

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