Abstract This article studies the role of firm size in setting financial reporting standards in the United States. The Securities and Exchange Commission and the Financial Accounting Standards Board often emphasize accounting standards' potential benefits to shareholders of publicly-held companies. While creditors and directors can usually obtain information directly from corporate management, equity investors do not normally have access to such information. Mandatory public disclosures may therefore be especially important to investors. Consequently, policymakers have indicated that they are interested in the relation between financial disclosures and statistics which summarize investor reactions. Research indicates that the relation between accounting earnings announcements and aggregate investor reactions depends on firm size. The evidence emanates from two types of empirical studies: association studies and events studies. Association studies tell us that accounting earnings and security prices reflect many of the same underlying economic events. Such results suggest that accounting data contain potentially useful measurements. Events studies document a market reaction to a particular disclosure. These studies indicate that investors react to earnings announcements; therefore, pre-announcement information (either privately developed by analysts and the financial press or voluntarily disclosed by corporate management) is not so informative that public earnings announcements become redundant.
Atiase et al. (1988) studied this question.