Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-15T06:16:12.616Z Has data issue: false hasContentIssue false
  • English
  • Français

Firm Size and the Informational Content of Financial Statements

Published online by Cambridge University Press:  01 December 2009

Daniel Zeghal
Get access Rights & Permissions [Opens in a new window]

Extract

The Capital Asset Pricing Model has been challenged recently by several studies that point to certain anomalies in the capital market related to firm size. Banz [3] reported a nonlinear relation between the aggregate market value of a firm's common stock and the stock's mean return. He found that firms with small market values had large and positive residual returns over a period of at least 40 years. Reinganum [23] found that high earning-price (E/P) stocks had higher returns than low E/P-ratio stocks and that, after controlling for size, the E/P effect largely disappeared. Although they rejected the hypothesis that the anomalies are due to inefficiency in the capital market, the two authors are not able to identify the economic factors that might explain the effect of firm size on the functioning of the capital market.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 3 , September 1984 , pp. 299 - 310
Copyright
Copyright © School of Business Administration, University of Washington 1984

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Alchian, A. A. “Information Costs. Pricing and Resources Unemployment.” Western Economic Journal, Vol. 7 (June 1969). pp. 109–128.Google Scholar
[2]Arrow, K. J. “Economic Welfare and the Allocation of Resources to Invention.” In The Rate and Direction of Inventive Activity: Economic and Social Factors.Universities National Bureau of Economic Research Conference Series.Princeton(1962).CrossRefGoogle Scholar
[3]Banz, Rolph D. “The Relationship between Return and Market Value of Common Stocks.” Journal of Financial Economics. Vol. 9 (March 1981). pp. 3–18.CrossRefGoogle Scholar
[4]Baumol, W. J. and Braunstein, Y. M.. “Empirical Study of Scale Economies and Production Complementarity: The Case of Journal Publication.” Journal of Political Economy, Vol. 85 (October 1977), pp. 1037–1048.CrossRefGoogle Scholar
[5]Beaver, W. H. “The Information Content of Annual Earnings Announcements.” Journal of Accounting Research, Empirical Research in Accounting: Selected Studies (1968), pp. 67–99.CrossRefGoogle Scholar
[6]Black, F. “Capital Market Equilibrium with Restricted Borrowing.” Journal of Business, Vol. 45 (July 1972), pp. 444–454.CrossRefGoogle Scholar
[7]Black, F., and Scholes, M.. “The Behavior of Security Returns around Ex-dividend Days.” Unpublished manuscript. University of Chicago and M.I.T. (1973).Google Scholar
[8]Davey, K.Mass Media, Volume II. A Study of the Economics of Publishing and Broadcasting for the Special Senate Committee on Mass Media (1970).Google Scholar
[9]Demsetz, H. “The Private Production of Public Goods.” Journal of Law and Economics, Vol. 13 (October 1970), pp. 293–306.CrossRefGoogle Scholar
[10]Dimson, E. “Risk Measurement when Shares Are Subject in Infrequent Trading.” Journal of Financial Economics. Vol. 7 (June 1979), pp. 197–226.CrossRefGoogle Scholar
[11]Fama, E. F.; Fisher, L.; Jensen, M.; and Roll, R.. “The Adjustment of Stock Prices to New Information.” International Economic Review, Vol. 10 (February 1969), pp. 1–22.CrossRefGoogle Scholar
[12]Firth, Michael. “The Impact of Earnings Announcements on the Share Price Behavior of Similar Type Firms.” The Economic Journal. Vol. 86 (June 1976). pp. 296–306.CrossRefGoogle Scholar
[13]Foster, G. “Intra-Industry Information Transfers Associated with Earnings Releases.” Journal of Accounting and Economics, Vol. 3 (December 1981), pp. 201–232.CrossRefGoogle Scholar
[14]Gonedes, J. N. “The Capital Market. The Market for Information and External Accounting.” The Journal of Finance, Vol. 31 (May 1976). pp. 611–630.CrossRefGoogle Scholar
[15]Gonedes, J. N. “Corporate Signaling, External Accounting and Capital Market Equilibrium: Evidence on Dividends, Income and Extraordinary Items.” Journal of Accounting Research, Vol. 16 (Spring 1978), pp. 26–79.CrossRefGoogle Scholar
[16]Gonedes, J. N. “Efficient Capital Markets and External Accounting.” The Accounting Review, Vol. 47 (January 1972), pp. 11–21.Google Scholar
[17]Gonedes, J. N., and Dopuch, N.. “Capital Market Equilibrium, Information-Production and Selecting Accounting Techniques: Theoretical Framework and Review of Empirical Work.” In Studies on Financial Accounting Objectives, Supplement to the Journal of Accounting Research (1974) pp.48–169.CrossRefGoogle Scholar
[18]Grant, Edward B. “Market Implications of Differential Amounts of Interim Information.” Journal of Accounting Research, Vol. 18 (Spring 1980). pp. 255–268.CrossRefGoogle Scholar
[19]Hart, P. E., and Prais, S. J.. “The Analysis of Business Concentration: A Statistical Approach.” Journal of the Royal Statistical Society. Vol. 119. Part 2. Series A. (1956). pp. 150–181.CrossRefGoogle Scholar
[20]Klein, R. W., and Bawa, V. S.. “The Effect of Limited Information and Estimation Risk on Optimal Portfolio Diversification.” Journal of Financial Economics. Vol. 5 (August 1977), pp. 89–111.CrossRefGoogle Scholar
[21]Malone, John R. “Economic-Technological Basis for Newspaper Diversity.” Journalism Quarterly, Vol. 28 (Summer 1951), pp. 315–326.CrossRefGoogle Scholar
[22]Morse, D. C. “Asymmetrically Distributed Information in a Market Setting: Theoretical and Empirical Approaches.” Unpublished Ph.D. thesis. Stanford University (1978).Google Scholar
[23]Reinganum, Marc R. “Misspecification of Capital Asset Pricing Empirical Anomalies Based on Earnings' Yields and Market Values.” Journal of Financial Economics. Vol. 9 (March 1981), pp. 19–46.CrossRefGoogle Scholar
[24]Roll, Richard. “A Possible Explanation of the Small Firm Effect.” The Journal of Finance. Vol. 36 (September 1981). pp. 879–888.CrossRefGoogle Scholar
[25]Schalit, S. S., and Sankar, V.. “The Measure of Firm Size.” The Review of Economics and Statistics. Vol. 59 (August 1977), pp. 290–298.CrossRefGoogle Scholar
[26]Scholes, M., and Williams, J.. “Estimating Betas from Nonsynchronous Data.” Journal of Financial Economics, Vol. 5 (December 1977). pp. 309–327.CrossRefGoogle Scholar
[27]Simon, H. A., and Bonini, C. P.. “The Size Distribution of Business Firms.” American Economic Review, Vol. 48 (September 1958), pp. 607–617.Google Scholar
[28]Stern, W. P., and Norby, W. C.. “Investment Research and Market Structure: Today and Tomorrow.” Financial Analysts Journal, Vol. 28 (January/February 1972), pp. 24–86.CrossRefGoogle Scholar
[29]Stigler, G. J. “The Economics of Information.” The Journal of Political Economy, Vol. 69 (June 1961), pp. 213–225.CrossRefGoogle Scholar
[30]Stillson, R. T. “An Analysis of Information and Transaction Service in Financial Institutions.” Journal of Money, Credit and Banking, Vol. 6 (November 1974), pp. 517–535.CrossRefGoogle Scholar
[31]Verrecchia, Robert E. “On the Theory of Market Information Efficiency.” Journal of Accounting and Economics, Vol. 1 (March 1979), pp. 77–90.CrossRefGoogle Scholar
[32]West, R. R., and Tinic, S. M.. The Economics of the Stock Market. New York: Praeger Publishers (1971).Google Scholar