THE BENEFITS OF COMPANY SIZE: THE CASE OF SHAREHOLDERS
| Author | G. D. Newbould,S. J. Stray,K. W. Wilson |
| DOI | http://doi.org/10.1111/j.1467-9485.1977.tb00409.x |
| Date | 01 February 1977 |
| Published date | 01 February 1977 |
Scottish Joicrnal
of
Political Economy,
Vol.
24,
No.
1,
February
1977
THE BENEFITS
OF
COMPANY SIZE:
THE CASE
OF
SHAREHOLDERS
G.
D.
NEWBOULD,
S.
J.
STRAY
AND
IS.
W. WILSON
An
excellent summary of growth, profitability and size of company has been
made recently by Eatwell
(1974).
He concluded:
“Little empirical evidence is available.
. .
large firms enjoy greater
certainty of profitability and growth, but at slightly lower rates than their
somewhat smaller colleagues.
.
.
But none of this gives
a
definite guide to
the operational structure of the large corporation.” (p.
418).
Our criticism of the existing work is that while testing whether size category
A
companies are more profitable than size category B companies is a contribu-
tion to knowledge, it says nothing about the distribution of the gains from
the extra profitability. If profits, benefits
or
economies do change as size of
company changes, it is important to know whether, for example, the incre-
ments accrue
to
the shareholders
in
the form of extra returns
on
their invest-
ments,
or
to employees in the form
of
remuneration
or
inefficiency
of
working
methods, or to consumers in the form
of
lower prices or better products at
existing prices, or to managers in the form of remuneration
or
extravagances
in diversification on unprofitable growth. Here we simply look at one
particular interest group, shareholders, and see if they have been treated
differently by companies operating at different sizes. While relying on
Eatwell for general background, we have relied heavily
on
Samuels and Smyth
(1968)
for
our
hypotheses
:
“Profit rates and firm size are inversely related.
.
.
intra-group variability
of profits.
. .
[is]
.
. .
inversely related to size” (p.
139).
These are translated in Section
I
into variables defined as being primarily
of
interest
to
shareholders.
The measure of size used is capital employed and the companies are the
largest
511
U.K.
quoted companies
on
1
January
1967
excluding banking,
insurance and finance. The
51
1
companies were followed through seven years
and
338
survived all forms of corporate death. Of the
338,
some data could
not be obtained
for
13, and thus the sample consists of
325
companies.
Companies had to be treated homogeneously with respect to industry because
the largest industry, “Engineering”, contained only
49
companies, which is
not sufficient to break down into size groups
for
statistical testing.
SHAREHOLDERS’
INTERESTS
The next step
is
to define measures which indicate some distribution of
benefit
to
shareholders. Ideally, these should be measures which indicate
77
To continue reading
Request your trial