The differential information hypothesis advanced by Atiase (1980) states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size. This study examines two corollaries of that hypothesis. First, security prices of large firms anticipate accounting earnings earlier than security prices of small firms. Second, for a given level of ‘unexpected’ earnings, the cumulative abnormal returns of small firms exceed those of large firms. The results are generally consistent with Atiase's hypothesis.

Profit margin, Current cost accounting, Information content, ASR No. 190

Net Monetary position, Stock price, GPP accounting, Historic costs

Abstract The article presents the author comments on the paper "The Disclosure of Replacement Cost Accounting Data and Its Effect on Transaction Volumes," by Byung T. Ro that was published in one of the previous issues of the journal "The Accounting Review." The intensity of investor demand for and their possible reaction to replacement cost (RC) disclosures as a supplement to traditional financial reports are continuing issues in the accounting literature, both professional and academic. According to the paper, a typical means of isolating the effects of firm-specific disclosures is to compare differential investor actions between a portfolio of firms disclosing the information and a matched sample of firms not disclosing the information. The author state that since the set of RC disclosure firms is effectively the set of "large" firms whose securities are publicly traded, it is clear that a control group matched on firm size is not available. If security returns and volume vary systematically with firm size, Ro's matched pair design will not allow for any direct conclusions regarding the effect of RC data.

Abstract This paper presents evidence that the positive association between firm size and price leads of earnings is not solely a function of private search incentives for firm‐specific information. Specifically, we find that small‐firm prices also lag large‐firm prices with respect to industry‐wide information. Our empirical analysis extends Collins, Kothari, and Rayburn 1987 and Freeman 1987, who document that security‐price leads of earnings are positively associated with market capitalization. In particular, we examine the association between firm size and the timing of security returns for two components of annual earnings changes: the average change for a firm's industry and the firm's idiosyncratic change. We find that large firms' prices have a longer lead than small firms' prices with respect to both components. Large firms' early lead on industry‐wide earnings suggests that returns of large firms predict returns of same‐industry small firms. To test this implication, we construct a portfolio of long (short) positions in small firms when the prior month's returns of large firms in their industry are above (below) average for large firms in other industries. This zero investment portfolio earns 4.5 percent over 12 months.

We assess potential information transfers by examining the association between the earnings announcements of early and late announcers in an industry. Our earnings prediction models are statistically significant much more frequently than would be expected by chance. The models suggest potential positive information transfers on average, but there is substantial cross-industry variation in the strength of this relation. We find that the greatest price reactions by nonannouncers to same-industry earnings announcements occur in industries with the greatest earnings comovement

Abstract Reviews the book "Governmental Accounting: Procedures and Practices, 1985," 2nd ed., by Cornelius E. Tierney and Philip T. Calder.

Abstract Reviews the book "Financial Planning and Evaluation for the Nonprofit Organization," by Anthony J. Gambino and Thomas J. Reardon.