Firm size proxies and the value relevance of predictive stock return models

  • Gulraze WakilEmail author


This paper investigates differences in value relevance of predictive stock return models depending on which firm size proxy (or proxies) is used, these being market value (MV), total book assets (TBA) and market value of total book assets (MVTA). Over the 27 year period of 1989–2015, MV provides higher value relevance in predicting future returns, while TBA provides higher value relevance when limited to large firms. Moreover, results reveal incremental explanatory power of approximately 27% when TBA are added to a one-year-ahead returns model already containing MV. The increase is 60% when examining only the last 10 years of the sample period. The findings of this study will help future accounting and finance research that uses predictive return models and potentially allow investors to make better resource allocation decisions leading to higher risk adjusted returns. In addition, the findings related to TBA will add to the debate on whether standard setters should place more emphasis on the valuation of assets and liabilities relative to earnings.


Firm size Value relevance Accounting assets 

JEL classification

G12 G17 M410 



I thank Douglas Hannah, Merridee Bujaki, Sarah Dyce, Eric Johnson, Raj Mashruwala (discussant), Bruce McConomy, Steven Murphy, Karin Petruska, Robert Resutek (discussant) and Ralph Winter for their valuable suggestions. The paper has also benefited from comments received at the 2015 Telfer (U. of Ottawa) annual conference on accounting and finance, the 2014 Canadian Academic Accountants Association annual conference, the 2013 AAA annual conference and the 2013 AAA Mid-Atlantic region conference. Any errors or omissions are my own.


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Copyright information

© Academy of Economics and Finance 2019

Authors and Affiliations

  1. 1.Ted Rogers School of Management, School of Accounting and FinanceRyerson UniversityTorontoCanada

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