Measuring Firm Size in Empirical Corporate Finance

59 Pages Posted: 27 Oct 2013 Last revised: 28 Aug 2018

See all articles by Chongyu Dang

Chongyu Dang

Founder Securities

Zhichuan Frank Li

University of Western Ontario - Ivey School of Business

Chen Yang

Wuhan University

Date Written: September 12, 2017


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.

Keywords: Firm size, Total assets, Total sales, Market capitalization, Firm size proxy, Firm size measure, Empirical corporate finance

JEL Classification: G3, G30, G31, G32, G34, G35, C23, C58, J31, J33

Suggested Citation

Dang, Chongyu and Li, Zhichuan Frank and Yang, Chen, Measuring Firm Size in Empirical Corporate Finance (September 12, 2017). Journal of Banking and Finance, Forthcoming, Available at SSRN: or

Chongyu Dang

Founder Securities ( email )

Zhichuan Frank Li (Contact Author)

University of Western Ontario - Ivey School of Business ( email )

1151 Richmond Street North
London Ontario, Ontario N6A 3K7

Chen Yang

Wuhan University ( email )


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