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Business Cycles and the Relation between Security Returns and Earnings

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  • Marilyn F. Johnson

    (University of Michigan)

Abstract

This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity.

Suggested Citation

  • Marilyn F. Johnson, 1999. "Business Cycles and the Relation between Security Returns and Earnings," Review of Accounting Studies, Springer, vol. 4(2), pages 93-117, June.
    • Handle: RePEc:spr:reaccs:v:4:y:1999:i:2:d:10.1023_a:1009649018325
    DOI: 10.1023/A:1009649018325
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    Cited by:

    1. Huanyu Ma & Xuegang Sun, 2025. "The impact of economic policy uncertainty on earnings value relevance," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(3), pages 2427-2449, July.

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