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Structural and Return Characteristics of Small and Large Firms

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  • Chan, K C
  • Chen, Nai-Fu

Abstract

The authors examine differences in structural characteristics that lead firms of different sizes to react differently to the same economic news. They find that a small firm portfolio contains a large proportion of marginal firms--firms with low production efficiency and high financial leverage. The authors construct two size-matched indices designed to mimic the return behavior of marginal firms and find that these return indices are important in explaining the time-series return difference between small and large firms. Furthermore, risk exposures to these indices are as powerful as log(size) in explaining average returns of size-ranked portfolios. Copyright 1991 by American Finance Association.

Suggested Citation

  • Chan, K C & Chen, Nai-Fu, 1991. "Structural and Return Characteristics of Small and Large Firms," Journal of Finance, American Finance Association, vol. 46(4), pages 1467-1484, September.
    • Handle: RePEc:bla:jfinan:v:46:y:1991:i:4:p:1467-84
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