Firm A is a growth firm that uses very conservative accounting policies. Firm B is growing more slowly and uses fair value accounting for its capital assets and related amortization. Otherwise, firm A and firm B are quite similar. They are the same size and have similar capital structures and similar betas.

Both firm A and firm B report the same good news in earnings this year. Which firm should have the greater security market response (earnings response coefficient) to this good earnings news?

Group of answer choices

Both firms should have the same security market response.

Firm B should have the greater security market response.

Firm A should have the greater security market response.

The answer cannot readily be determined.