When Micro Firms Speak Macro: Evidence on Firms' Macroeconomic Disclosures

The performance of an individual firm depends in part on broader macroeconomic conditions. We develop a new annual measure of the interaction between a firm’s sensitivity to macroeconomic conditions and its information environment using management's disclosures about macroeconomic conditions in the 10-K. Our disclosure measure jointly estimates how sensitive a firm’s performance is to macroeconomic conditions and the manager’s decision to provide macroeconomic disclosures. We find that firms increase their disclosure about macroeconomic conditions over time, consistent with increases in the role of the macroeconomy in firm performance. These increases in disclosure are prevalent in all firms, regardless of size or geographic diversification. Our time-varying measure outperforms existing static measures used to identify bellwether firms, signaling the importance of time-varying macroeconomic identification. Finally, we find that analyst forecasts are more accurate in firms with higher levels of macroeconomic disclosure. However, analyst forecasts reduce information asymmetry primarily for firms that disclose less macroeconomic information. We conclude that disclosure about macroeconomic conditions is an import component of the firm’s information environment