A Study of Differences in Returns between Large and Small Companies in Europe

This report consists of two parts. The first part is a research note describing a comprehensive analysis of the realized return differential between small and large firms (i.e., the "size premium") in a sample of European stocks during the period between 1990 and 2018. This study establishes that during the period under examination small European stocks earned a statistically and economically significant size premium relative to large stocks. The observed size premium is robust to controlling for size-related beta differences as well as to changes in the metric used to measure size. The second part of the report presents a large collection of exhibits – and a brief description of the procedures and assumptions underlying these exhibits – that can help the analyst in estimating the cost of equity capital for European businesses using various measures of firm size. The study described in this report was commissioned by Duff & Phelps LLC