Earnings Expectations and Macroeconomic Conditions *

Companies’ realized earnings depend on overall economic conditions. Market participants should therfore adjust their earnings expectations to surprising macroeconomic news. However, despite its importance for asset pricing models, thus far, empirical research was not able to provide clear-cut evidence of a link between earnings expectations and economic news. Based on a detailed analysis of the information flow, we close this apparent gap. Analyzing individual I/B/E/S earnings forecast revisions, we document a significant influence of surprising news in scheduled macroeconomic announcements. Moreover, we find evidence that the news impact is stronger in recessions than in expansions. JEL: E32, G12, G14, G17 * We gratefully acknowledge the comments of Ray Ball, Carsten Homburg, Syed Mujahid Hussain and workshop participants at University of Cologne as well as participants in the 2008 Campus for Finance Conference. Financial support from the Deutsche Forschungsgemeinschaft (DGF) is gratefully acknowledged. Contact: University of Cologne, Corporate Finance Seminar, Albertus-Magnus Platz, D-50923 Cologne, Germany. Tel. +49 (0)221 470 7876. Email: [email protected] and [email protected] (corresponding author).