Bridge over ocean
1 September 1997 Financial Analysts Journal Volume 53, Issue 5

Does Size Really Matter?

  1. Jonathan B. Berk

If the size of firms is measured correctly, small firms do not necessarily earn higher returns than larger firms. Yet, this finding is not inconsistent with the empirical fact that firms with small market values earn higher returns. Modern financial theory predicts that when firm size is economically unrelated to return, the relation between firm market value and return will be negative; that is, firms with small market values will have higher expected returns than other firms.

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