I read the entire edition of Business Valuation Review (Volume 37, Issue 3, Fall 2018) focused on “the size effect.” I have the following “big picture” comments after considering all four articles together and title my letter: The Size Effect: Should We Care?1
We have two diametrically opposed articles regarding the existence of the size effect: “The Absence of a Size Effect Relevant to the Cost of Equity,” written by Clifford S. Ang, and “The Size Effect Continues to Be Relevant When Estimating the Cost of Capital,” written by Roger Grabowski. There are, of course, other articles in existence that support both viewpoints.
The difference in viewpoints should give appraisers—at least some—pause in their confidence in any reference source that purportedly claims to capture the alleged effect.
I recently posed this same concern to a well-respected business appraiser during a webinar....