Differential Response from Interim Accounting Earnings and Overnight Macro Information

Previous research in accounting has uncovered an information asymmetry between large and small firms to the release of earnings news. For smaller firms, earnings resolve more uncertainty and provide more information which is not already captured in prices. This paper provides several extensions regarding the impact of information on firm size using intra-day trading data from the Australian Stock Exchange (ASX). First, we analyse the impact of overnight macro information as a function of firm size. This is done by using an intervention series from the US stock market and transfer function time series model. The research design is necessitated by the lagged trading hours that occur in Asian-Pacific markets and the possibility that overnight information, and not earnings news, is driving price changes. After controlling for the impact of macro information, the distribution of continuations and reversals test is used as an alternative to the market model to test for the intra-day information impacts from earnings releases. Our results support a complex and differential information environment between small and large firms. Macro information has a greater impact on large firms, whilst earnings news contains relatively greater information for small firms.