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

Daniel Aobdia, Judson Caskey*, N. Bugra Ozel

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)1191-1224
Number of pages34
JournalReview of Accounting Studies
Volume19
Issue number3
DOIs
StatePublished - Sep 2014

Keywords

  • Aggregate risk
  • Earnings
  • Information transfer
  • Inter-industry networks
  • Stock returns

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)

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