Scale and Scale Effects in Market-Based Accounting Research
Peter D. Easton
University of Notre Dame - Department of Accountancy
Gregory A. Sommers
Southern Methodist University (SMU) - Edwin L. Cox School of Business
Journal of Business Finance & Accounting, p. 25-56, January 2003
The nature of the data we usually encounter in market-based accounting research is such that the results of the regression of market capitalization on financial statement data are driven by a relatively small subset of the very largest firms in the sample. We refer to this overwhelming influence of the largest firms as the "scale effect". Firms with large price per share (and large "per share" accounting variables) have a similar effect. This effect is more than heteroscedasticity. It arises due to the non-linearity in the relation between market capitalization (price per share) and the financial statement variables.
Number of Pages in PDF File: 57
JEL Classification: M41, C10Accepted Paper Series
Date posted: April 22, 2000
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