Measuring Firm Size in Empirical Corporate Finance

By Chongyu Dang, Z. Li, Chen Yang. 2018

769 citations recorded by the source corpus.

In empirical corporate finance, firm size is commonly used as an important, fundamental firm characteristic. However, no research comprehensively assesses the sensitivity of empirical results in corporate finance to different measures of firm size. This paper fills this hole by providing empirical evidence for a “measurement effect” in the “size effect”. In particular, we examine the influences of employing different proxies (total assets, total sales, and market capitalization) of firm size in 20 prominent areas in empirical corporate finance research. We highlight several empirical implications. First, in most areas of corporate finance the coefficients of firm size measures are robust in sign and statistical significance. Second, the coefficients on regressors other than firm size often change sign and significance when different size measures are used. Unfortunately, this suggests that some previous studies are not robust to different firm size proxies. Third, the goodness of fit measured by R-squared also varies with different size measures, suggesting that some measures are more relevant than others in different situations. Fourth, different proxies capture different aspects of “firm size”, and thus have different implications. Therefore, the choice of size measures needs both theoretical and empirical justification. Finally, our empirical assessment provides guidance to empirical corporate finance researchers who must use firm size measures in their work.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/527e82cd79b1b20f91ac7d059b68b23683c81712

How researchers see this paper

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In Accounting

1. Lin Lefen
2. Sohail Ahmad Javeed
3. Usama Awan
4. E. Akben-Selcuk
5. Andrzej Kraslawski
6. Janne Huiskonen

In Economics and Econometrics

1. Lin Lefen
2. Sohail Ahmad Javeed
3. Usama Awan
4. E. Akben-Selcuk

Citations in the corpus

• Corporate Social Responsibility and Financial Performance: The Moderating Role of Ownership Concentration in Turkey (2019, background): “[51] noted that each of these measures have their own advantages and disadvantages; total assets measures total resources, market capitalization measures growth opportunities, and total sales are related to product market.”
• An Analysis of Corporate Social Responsibility and Firm Performance with Moderating Effects of CEO Power and Ownership Structure: A Case Study of the Manufacturing Sector of Pakistan (2019, methodology): “To support our conclusion, several studies have found that CSR and FP have a positive association with the effects of CEO power [22,160,161].”
• An Exploratory Study Based on a Questionnaire Concerning Green and Sustainable Finance, Corporate Social Responsibility, and Performance: Evidence from the Romanian Business Environment (2019, background): “Likewise, it should be added, that in recent years, there has been considerable interested in the concepts “green corporate social responsibility”, “green economy” and “green management” of enterprises, “circular economy” and “smart cities”, which target, in essence, a new dimension of social respon”
• Governing Interfirm Relationships for Social Sustainability: The Relationship between Governance Mechanisms, Sustainable Collaboration, and Cultural Intelligence (2018, result): “Overall, the results showed acceptable validity to this data (see Table 4).”