Macroeconomic Variables and Corporate Performance

Abstract

Increased economic and financial integration and substantial macroeconomic fluctuations require that corporate managers and investment analysts pay more attention than in the past to the link between the “noise” that these fluctuations represent and the company's performance—past and future. For many reasons, company managers must weed out the effects of the noise to obtain a clear picture of the company's intrinsic competitiveness and long-term sustainable profits. The question is: To what extent can outside shareholders and investment analysts adopt this approach to corporate performance? Current reporting practice does not provide these outsiders with an adequate idea of the character and magnitude of the impact of macroeconomic variables on the company. The recommendations of International Accounting Standard 1, Presentation of Financial Statements (as revised in 1997), however, offer an improvement in this important area. This article presents four levels of implementation of IAS 1 and what these levels mean in terms of relevant information transmitted to outsiders. Illustrations are provided of current practices in two global industries and of a release that would meet the informational demands of shareholders and analysts.

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