Twitter poll on the size effect

BVWireIssue #235-2
April 13, 2022

cost of capital
cost of capital, discount rate, private company valuation, risk analysis, cost of equity, size effect

Wes Gray, a Ph.D., financial analyst, and CEO of Alpha Architect, recently conducted a poll on Twitter about the size effect (implicit in traded stocks where returns can be observed). About 2,200 people responded to the poll. The results:

  • Over half (51%) believe there is a size effect (i.e., smaller firms tend to outperform bigger firms);
  • A quarter (25%) believe there is an inverse (negative) size effect (i.e., bigger firms tend to outperform smaller firms); and
  • The remainder (24%) believe there is no size effect.

Ongoing academic research concludes that the size effect has diminished or disappeared since it was first documented in 1981 (see our last coverage here). But the vast majority of valuation practitioners believe that the size premium still exists. During a BVR webinar in 2020, a poll of the audience (of about 200 attendees) found that 94% of them use a size premium.

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