Scale and Scale Effects in Market-Based Accounting Research

57 Pages Posted: 22 Apr 2000

See all articles by Peter D. Easton

Peter D. Easton

University of Notre Dame - Department of Accountancy

Gregory A. Sommers

Southern Methodist University (SMU) - Accounting Department

Abstract

The nature of the data we usually encounter in market-based accounting research is such that the results of the regression of market capitalization on financial statement data are driven by a relatively small subset of the very largest firms in the sample. We refer to this overwhelming influence of the largest firms as the "scale effect". Firms with large price per share (and large "per share" accounting variables) have a similar effect. This effect is more than heteroscedasticity. It arises due to the non-linearity in the relation between market capitalization (price per share) and the financial statement variables.

JEL Classification: M41, C10

Suggested Citation

Easton, Peter D. and Sommers, Gregory A., Scale and Scale Effects in Market-Based Accounting Research. Journal of Business Finance & Accounting, p. 25-56, January 2003, Available at SSRN: https://ssrn.com/abstract=212708 or http://dx.doi.org/10.2139/ssrn.212708

Peter D. Easton (Contact Author)

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6096 (Phone)
574-631-5127 (Fax)

Gregory A. Sommers

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-1188 (Phone)
214-768-4099 (Fax)

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