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Firm Size and the Informational Content of Financial Statements

Published online by Cambridge University Press:  01 December 2009

Daniel Zeghal
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Extract

The Capital Asset Pricing Model has been challenged recently by several studies that point to certain anomalies in the capital market related to firm size. Banz [3] reported a nonlinear relation between the aggregate market value of a firm's common stock and the stock's mean return. He found that firms with small market values had large and positive residual returns over a period of at least 40 years. Reinganum [23] found that high earning-price (E/P) stocks had higher returns than low E/P-ratio stocks and that, after controlling for size, the E/P effect largely disappeared. Although they rejected the hypothesis that the anomalies are due to inefficiency in the capital market, the two authors are not able to identify the economic factors that might explain the effect of firm size on the functioning of the capital market.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 19 , Issue 3 , September 1984 , pp. 299 - 310
Copyright
Copyright © School of Business Administration, University of Washington 1984

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