Academic research often categorizes the size effect as simply an anomaly, created by incorrect measurements of beta, for example, and that the size effect contradicts the underlying assumptions of the Capital Asset Pricing Model. The panel will explore: 1) the problems created when academics measure size as market value of equity; 2) the issues created given that the size effect is cyclical and keeps returning; 3) research that indicates that the size effect continues to appear after correcting for data issues raised; and 4) whether the size effect is simply a liquidity effect and whether that makes a difference in valuing a closely-held business.

We will discuss the risks of small businesses compared to those of large businesses and the relationship of business size and other fundamental risk measures. We will discuss whether one should be using a changing size premium given the projections used in the valuation.

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