We provide among the first empirical evidence, consistent with recent macro global game crisis models, that shows that the precision of public signals can coordinate crises. In these models, self-fulfilling crises independent of fundamentals can occur only when publicly disclosed signals of fundamentals have high precision; poor fundamentals are the sole driver of crises only in low precision settings. We exploit a key publicly disclosed signal of fundamentals, namely accounting data, for 68 currency and systemic banking crises in 17 countries. We find that precrisis accounting signals of fundamentals are significantly lower only in low-precision countries.
"Accounting for Crises." American Economic Journal: Macroeconomics,
Asymmetric and Private Information; Mechanism Design
Financial Markets and the Macroeconomy
Information and Market Efficiency; Event Studies; Insider Trading
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Firm Performance: Size, Diversification, and Scope
Accounting and Auditing: General