A Study of Differences in Returns between Large and Small Companies in Europe

56 Pages Posted: 22 Sep 2014 Last revised: 25 Aug 2016

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

Date Written: April 30, 2016

Abstract

This report consists of two parts. The first part is a research note describing a comprehensive analysis of the realized return differential between small and large firms (i.e., the "size premium") in a sample of European stocks during the period between 1990 and 2013. This study establishes that during the period under examination small European stocks earned a statistically and economically significant size premium relative to large stocks. The observed size premium is robust to controlling for size-related beta differences as well as to changes in the metric used to measure size. The second part of the report presents a large collection of exhibits – and a brief description of the procedures and assumptions underlying these exhibits – that can help the analyst in estimating the cost of equity capital for European businesses using various measures of firm size. The study described in this report was commissioned by Duff & Phelps LLC and conducted by the Erasmus Centre for Valuation and Accounting, Rotterdam School of Management, Erasmus University.

Keywords: Cost of equity, size premium, European stock markets

JEL Classification: G12, G15

Suggested Citation

Peek, Erik, A Study of Differences in Returns between Large and Small Companies in Europe (April 30, 2016). Available at SSRN: https://ssrn.com/abstract=2499205 or http://dx.doi.org/10.2139/ssrn.2499205

Erik Peek (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Burg Oudlaan 50
Room T08-53
3062 PA Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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