We examine differences in structural characteristics that lead firms of different sizes to react differently to the same economic news. We find that a small firm portfolio contains a large proportion of marginal firms-firms with low production efficiency and high financial leverage. We construct two size-matched return in- dices designed to mimic the return behavior of marginal firms and find that these return indices are important in explaining the time-series return difference be- tween small and large firms. Furthermore, risk exposures to these indices are as powerful as log(size) in explaining average returns of size-ranked portfolios.
CITATION STYLE
Chan, K. C., & Chen, N.-F. (1991). Structural and Return Characteristics of Small and Large Firms. The Journal of Finance, 46(4), 1467. https://doi.org/10.2307/2328867
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