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| Author: | Easton, P. D. Sommers, G. A. |
| Title: | Scale and the Scale Effect in Market-based Accounting Research |
| Journal: | Journal of Business Finance and Accounting
2003 : JAN-MAR, VOL. 30:1-2, p. 25-56 |
| Index terms: | SCALING NON-LINEAR MODELS HETEROSCEDASTICITY VALUE THEORY PRICES REGRESSION ANALYSIS |
| Language: | eng |
| Abstract: | The nature of the data the authors usually encounter in market-based accounting research is such that the results of the regressions of market capitalization on financial statement variables (referred to 'price-levels' regressions) are driven by a relatively small subset of the very largest firms in the sample. The authors refer to this overwhelming influence of the largest firms as the scale effect'. This effect is more than heteroscedasticity. It arises due to the non-linearity in the relation between market capitalization and the financial statement variables. The authors present the case that scale is market capitalization rather than a correlated omitted variable. Since scale of market capitalization, the authors advocate its use as a deflator in a regression estimated using weighted least squares. |
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