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Prior research has documented three possible factors affect-
ing the magnitude of the stock price revision (MSPR) during
the earnings announcement period. Atiase (1980) advanced the
differ- ential information hypothesis, which asserts that the
"quantity" of information for the large firms prior to the
announcements of earnings should be more than those of small
firms. This leads to the conclusion that the MSPR should be
less for large firms. In addition, Choi and Salamon (1989)
proposed that both the quality of earnings and the operating
uncertainty are important determi- nants of the MSPR . If the
quality of large firms'' earnings is higher than the small
firms, then the large firms should experi- ence more price
revision when the earnings are announced(the in- formation
quality hypothesis). On the contrary, If large firms possess
less operating uncertainty , then they should have less MSPR(
the operating uncertainty hypothesis). Therefore, firm size
could be as proxy for the three factors. The main purpose of
this thesis is to examine whether firm size is positively or
negatively correlated with the MSRP. From which,we could infer
the relative importance of the three deter- minants. Our
findings are as follows:‧During the announcement period, the
small firms tend to have more MSPR as compared to the pre-
announcement period. Large firms do not exhibit similar
pattern.‧Firm size is negatively correlated with the MSPR.‧
The earnings announcements for the third quarters are coupl- ed
with the largest MSPR.‧Annual reports for both the large and
small firms do contain more MSPR when the earnings are
announced, as compared to the pre-announcement period. To sum
up , the findings are consisted with the differential in-
formation and the information quality hypotheses.
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