The Size Premium: Is It Expected?

The Size Effect is the tendency for small firms to earn higher returns than large corporations. We find for the UK this effect is expected in the sense that small firms on average have higher fundamental growth than large corporations. Our analysis suggests that the magnitude of the expected size effect has declined for recent decades. There is some evidence the decline in expected size effect occurred shortly before its discovery in the UK. The Size Effect is substantially smaller when alternative measures of size than stock market capitalisation is used. Overall, our analysis implies a smaller size premium is expected for the early 21 st Century than the mid 20 th