Firm size effects on stock returns in mergers and acquisitions in Asian emerging markets

Abstract

This study finds that firm size effects can be captured at every step during the process of estimating abnormal returns. Our small firm portfolio has higher averages with respect to alpha, total risk, firm-specific risk, expected return, actual return and abnormal return. However, this small firm portfolio has a smaller beta average, which contradicts most prior findings which suggest that small firms tend to have higher betas. The observed higher alpha coefficient (not beta coefficient) makes a major contribution to the observed higher expected return for small acquiring firms. Small acquiring firms still gain higher abnormal returns than large acquiring firms even when the higher expected returns of the small firms are incorporated in the process of the abnormal return estimation.