Ownership Control And Small Firm Anomalities

Abstract

Tests using the Capital Asset Pricing Model show that during the 1981 through 1983 period, a portfolio of common stocks composed of “owner-controlled” firms significantly outperformed a group of “manager-controlled” firms, even after adjusting for systematic risk. Small capitalization stocks were also shown to have generated large abnormal returns compared to large firm stock during this period. Interestingly, the statistical significance of both the ownership control and small firm effects was not reduced when the other effect was controller. The implications of these results for investors are that large excess returns may be earned by tilting stock portfolios towards owner-controlled, small capitalization firms.