It's Time For Valuation Experts To Let Go Of The Size Premium

By Clifford Ang (June 22, 2020, 6:22 PM EDT) -- The size premium — the idea that small stocks outperform large stocks on a risk-adjusted basis — is an ongoing, contested topic among valuation experts.

In some cases, experts debate whether a size premium should be added to the capital asset pricing model to estimate the cost of equity for smaller firms.

For example, in the In re: Appraisal of Stillwater Mining Company opinion, the Delaware Court of Chancery noted that "the experts debated whether to apply a small-company risk premium otherwise known as a size premium" and that "[t]his one dispute results in a valuation swing of $2.13 per share,...

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