“There has been some talk in recent years suggesting that the size premium no longer exists,” James Harrington
(Duff & Phelps) told the audience at the recent CalCPA Business Valuation Conference in San Francisco. “But research that Duff & Phelps has performed (based on data from the Center for Research in Security Prices at the University of Chicago) suggests that the size premium is alive and well.” he added. To help support this assertion, Harrington presented data from three time periods: 1980−2010, 1985−2010, and 1990−2010 using the portfolio beta and average return for the 25 portfolios from Exhibit B-1 of the Duff and Phelps Risk Premium Report.
The results show the size premium still exists in each of the time periods. “These periods are shorter than the longer periods we are used to looking at—but the results are quite compelling, and seem to indicate that reports of the size premium’s death may have been greatly exaggerated, to paraphrase an old saying,” he said. Look for Harrington’s article on this topic in a future Business Valuation Update.
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