The small firm effect: The case of Ghana Stock Exchange
Date
2017-04
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Abstract
The small firm effect is a stock market anomaly which shows that firms with smaller
market capitalization earn higher returns than firms with larger market capitalization.
The objective of this study was to test whether the small firm effect exists on the
Ghana Stock Exchange (GSE).
The study adopted an explanatory research design. The study used 30 listed firms that
had traded consistently from 2009 to 2016 as sample. The study created quartile
portfolios in ascending order for the stocks based on market capitalization. The first
and fourth portfolios were used as small and large firm portfolios. The study also
calculated monthly returns for the stocks for the study period. The study then used
secondary data from the GSE, Bank of Ghana, Ghana Statistical Services and Annual
Reports Ghana to conduct a regression analysis. The OLS regression analysis was
used to test for the relationship between size and returns on the GSE.
The regression results showed that there was a statistically insignificant and weak
positive relationship between stock market returns on the GSE and small firm returns.
On the contrary, large firms on the GSE showed a statistically significant and strong
positive relationship between stock market returns on the GSE and small firm returns.
Thus, the study concluded that small firm effect was not present on the GSE since
large firms showed higher returns than small firms. The study then recommended that
the Securities and Exchange Commission formulate policy to reduce the impact large
firm size has on stock returns.
Keywords: Small firm effect, small firm returns, market anomalies
Description
Thesis submitted to the Department of Business Administration, Ashesi University College, in partial fulfillment of Bachelor of Science degree in Business Administration, April 2017
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Keywords
small firm effect, Ghana Stock Exchange, small firm returns, financial market anomalies, stock market