Does Size Really Matter in Japan?

Size-related regularities can be explained by riskiness and should not be regarded as anomalies. This article provides evidence that market value of equity reflects information about risk. Using data from the Japanese stock market, we found that among companies with similar cash flows, the companies...

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Bibliographic Details
Published in:Financial analysts journal 1998-11, Vol.54 (6), p.22-34
Main Authors: Xavier Garza-Gómez, Hodoshima, Jiro, Kunimura, Michio
Format: Article
Language:English
Subjects:
Arithmetic mean
Book value
Business structures
Cash flow
Equity
Financial analysis
Investment risk
Japan
Market Anomalies
Market value
Proxy reporting
Proxy statements
Risk
Standard deviation
Statistical significance
Stock exchange
Stock returns
Stocks
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Summary:Size-related regularities can be explained by riskiness and should not be regarded as anomalies. This article provides evidence that market value of equity reflects information about risk. Using data from the Japanese stock market, we found that among companies with similar cash flows, the companies with riskier cash flows had lower market values and higher expected returns. This role of market value of equity is strong over time and significant even when market beta estimates are considered. We also found, contrary to a "size effect," a positive relationship between measures of physical size and returns.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v54.n6.2222