The inverse association of capitalization and performance is found to hold over a broader range of firm sizes than has been studied before. The result is found by merging data for listed U.S. firms with data for listed Australian companies, which are on average much smaller than their North American brethren. For the entire size spectrum and across listing locations, liquidity is found to be related to performance, adding support to the popular belief that it is (perhaps one of) the factor(s) missing from conventional tests of market efficiency. The results suggests that a lack of liquidity, rather than size per se, is a material contributor to the high cost of equity finance faced by small companies. The results suggest that programs designed to subsidize small firms by enhancing the liquidity of their shares may be effective.
展开▼
