Abstract
Easton and Sommers (ES) (2003) document the existence of an overwhelming influence of large firms in 'price-levels' regressions on US data -also Akbar and Stark (2003) on UK data. They refer to this overwhelming influence as the 'scale effect'. ES argue that the scale effect is caused by non-linearlities in the relationship between market value and the accounting variables. But non-linearlities it is only a possibility. I posit that the scale effect documented by ES is a pure econometric phenomenon. Typical variables used in Market-based Accounting Research (i.e. market value, book value, total assets, positive earnings, losses, ....) follow distributions that are very strong skewed, that is, distributions with an unique and large tail. I argue that the scale effect is related to the presence of this large tail. When I apply a logarithmic transformation -it has been recommended by the literature in the case of highly skewed distributions, tending to restore normality-, the 'scale effect' disappears.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
