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Firm Performance and Macro Forecast Accuracy

Author

Listed:
  • Mari Tanaka

    (Hitotsubashi University, Graduate School of Economics)

  • Nicholas Bloom

    (Stanford University, Department of Economics)

  • Maiko Koga

    (Bank of Japan)

  • Haruko Kato

    (Bank of Japan)

Abstract

Ever since Keyenes' famous quote about animal spirits, there has been an interest in linking firms' expectations and actions. But the empirical evidence on this is scarce because of the lack of firm panel data on expectations and outcomes. In this paper, we combine a unique survey of Japanese firms' GDP forecasts with their accounting data for 27 years for over 1,000 large Japanese firms. We find four main results. First, we find that firms' GDP forecasts are positively and significantly associated with firms' input choices, such as investment and employment, and with firm's sales, even after controlling for year and firm fixed effects. These results are stronger for cyclical firms, suggesting a firm's input decision is particularly dependent on its manager's forecasts when its demand is more sensitive to the macro economy. Second, both optimistic and pessimistic forecast errors lower profitability because it is costly to have too much or too little capacity. Third, while over optimistic forecasts lower measured productivity, over pessimistic forecasts do not tend to have an impact on productivity. Finally, larger and more cyclical firms make more accurate forecasts, presumably reflecting the higher return from accurate forecasts. More productive, older, and bank owned firms also make more accurate forecasts, suggesting that forecasting ability is also linked to management ability, experience and governance. Collectively, this highlights the importance of firms' forecasting ability for micro and macro performance.

Suggested Citation

  • Mari Tanaka & Nicholas Bloom & Maiko Koga & Haruko Kato, 2018. "Firm Performance and Macro Forecast Accuracy," Bank of Japan Working Paper Series 18-E-9, Bank of Japan.
  • Handle: RePEc:boj:bojwps:wp18e09
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    More about this item

    Keywords

    Forecast; investment; employment; productivity;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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