Galb ai h, C aig S.
A icle
Size p emium in small business alua ion: Analysis o
closely-held i ms
The Jou nal o En ep eneu ial Finance (JEF)
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Sugges ed Ci a ion: Galb ai h, C aig S. (2025) : Size p emium in small business alua ion: Analysis
o closely-held i ms, The Jou nal o En ep eneu ial Finance (JEF), ISSN 2373-1761, Peppe dine
Uni e si y, G aziadio School o Business and Managemen and The Academy o En ep eneu ial
Finance (AEF), Malibu, CA and Los Angeles, CA, Vol. 27, Iss. 1, pp. 31-46,
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The Jou nal o En ep eneu ial Finance The Jou nal o En ep eneu ial Finance
Volume 27
Issue 1
2025
A icle 2
2025
SIZE PREMIUM IN SMALL BUSINESS VALUATION: ANALYSIS OF SIZE PREMIUM IN SMALL BUSINESS VALUATION: ANALYSIS OF
CLOSELY-HELD FIRMS CLOSELY-HELD FIRMS
C aig S. Galb ai h
Uni e si y o No h Ca olina - Wilming on
Follow his and addi ional wo ks a : h ps://digi alcommons.peppe dine.edu/je
Pa o he En ep eneu ial and Small Business Ope a ions Commons
Recommended Ci a ion Recommended Ci a ion
Galb ai h, C aig S. (2025) "SIZE PREMIUM IN SMALL BUSINESS VALUATION: ANALYSIS OF CLOSELY-
HELD FIRMS,"
The Jou nal o En ep eneu ial Finance
: Vol. 27: Iss. 1, pp. 31-46.
DOI: h ps://doi.o g/10.57229/2373-1761.1498
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Size P emiums in Small Business Valua ion: Analysis o Closely-Held Fi ms
C aig S. Galb ai h
Duke P og ess En e gy/Be y Came on Dis inguished P o esso
Uni e si y o No h Ca olina Wilming on, Wilming on, NC USA
[email p o ec ed]
ABSTRACT
Abs ac
: One o he mos misunde s ood componen s o aluing a small closely-held business is how
o add ess he impac o small size. Mos closely-held en e p ises a e ela i ely small in size, wi h
ma ke alues less han $1million. Many small mom and pop ope a ions, o single owne -ope a o
amily businesses, o en ha e ma ke alues e en smalle . The mos common me hod o accoun o
size is o use he size p emium epo s om K oll o ano he inancial da a se ice p o ide . Howe e ,
hese small i m p emiums a e de e mined exclusi ely om publicly- aded i ms, whe e e en he
ca ego y o he smalles publicly- aded i ms a e s ill magni udes la ge han he ypical small closely-
held i m. This s udy examines he K oll size p emium da a on publicly- aded i ms and compa es i
wi h an analysis o size da a om a p op ie a y da abase o closely-held i m ansac ions. We de elop
a ious models ha be e assess he impac o size on he cos o equi y calcula ions o small, closely-
held i ms.
Key Wo ds: Size p emium; Valua ion; Closely-held i ms; Discoun a es, Capi aliza ion a es
1. In oduc ion
The alua ion o small closely-held companies, mos o which a e single owne -ope a o o
en ep eneu ial en i ies, always p esen s a di icul es ima ion p ocess. The e a e a a ie y o issues he
business alua o o a small business needs o conside , such as accu acy o inancial s a emen s,
adjus ing o ai ma ke expenses, and he na u e o owne compensa ion. The e a e h ee b oad
ca ego ies o me hods used o alue small closely-held i ms: asse me hods, ma ke compa able
me hods, and income me hods. In gene al, he asse me hod calcula es he minimum alue o a
business (app oxima ion o ne liquida ion), while he compa able and income me hods ep esen
“going conce n” alues. The compa able me hods ine i ably a emp o employ ansac ions o simila
i ms and hen apply a ious me ics such as e enue o g oss p o i mul iples o he a ge i m.
Income me hods, on he o he hand, examine he ea nings o he i m. The mos common
income-based alua ion me hod used in p ac ice is he capi aliza ion o ea nings (o ee
cash lows/FCFE) me hods. This in ol es applying a capi aliza ion a e o he adjus ed ea nings in
o de o ob ain a ai ma ke equi y alue o he a ge i m. The calcula ion o he app op ia e
capi aliza ion a e equi es an es ima e o he associa ed discoun a e, which is hen adjus ed o
g ow h. In ac , he capi aliza ion o ea nings me hod is essen ially an app oxima ion o he p esen
alue o u u e ea nings o cash lows unde he assump ion ha pas ea nings will con inue in o he
u u e a a somewha cons an g ow h a e.
Fo his eason, capi aliza ion o ea nings me hods should be applied o ela i ely s able i ms.
I is gene ally no app op ia e o ea ly-s age echnology i ms, in ellec ual p ope y alua ions, o
si ua ions whe e he u u e inancial si ua ion migh be e y di e en om he pas – in hese cases a
31
Galb ai h: Size P emium in Small Business Valua ionPublished by Peppe dine Digi al Commons, 2025
discoun ed u u e cash low analysis is gene ally used. Howe e , in many cases o small closely-held
i ms, wi h s able pas ea nings, and no majo expec ed changes in he compe i i e en i onmen in
he u u e, he capi aliza ion o ea nings, wi h i s unde lying heo e ical assump ion o discoun ed
cash lows, is a easonable and o en-used me hod.
While income-based alua ion me hods ha e hei own se o cons ain s, such as de eloping
accu a e ea nings o cash low o ecas s o he i m, a pa icula equi emen o calcula ing
discoun ed ea nings, o i s associa ed capi aliza ion o ea nings, is he de elopmen o an app op ia e
discoun a e, o cos o equi y. Unlike he cos o deb , which can be de e mined om a weigh ed
a e age o in e es a es, he cos o equi y equi es signi ican hough and analysis. While he e a e
many di e en app oaches associa ed wi h his calcula ion, he mos common way o calcula ing he
cos o equi y ( e) o a closely-held business is he basic “build-up” me hod, o a simila a ia ion (e.g,
T e ino, 1997, Pin o, 2020; Damoda an, 2024b).
D e = Risk F ee Ra e + Equi y Risk P emium + Indus y P emium + Fi m Speci ic P emium +
Size P emium
In he build-up app oach, he isk- ee a e is gene ally de e mined by he yield a e o a
go e nmen backed ins umen , such as T-bills o T-bonds, al hough he e is some deba e as o which
is mos app op ia e. The calcula ion o he equi y isk p emium can be qui e complica ed, wi h
di e en opinions ega ding he app op ia e me hodology. Ine i ably, howe e , he equi y p emium
is calcula ed om da a o publicly- aded i ms. Fo una ely o he business app aise , he calcula ed
equi y isk p emiums a e easily ob ained om published sou ces, such as om K oll (K oll, 2024) o
by P o esso Aswa h Damoda an’s wo k a New Yo k Uni e si y (Damoda an, 2024). K oll, o
example, cu en ly epo s a 5.0% equi y p emium o 2024 when de eloping a discoun a e o U.S.
based i ms.
The equi y p emium o in e na ional ma ke s can also a y d ama ically based on he
coun y’s isk and c edi p o ile. Damoda an (2024a), o example, epo s a 2023 equi y isk p emium
o 15.43% o Egyp , and 8.70% o Spain, while o he coun ies such as Canada and Ge many a e
almos iden ical o he U.S. Since equi y p emiums a e almos always de e mined om a e ages
ob ained om he ull equi y ma ke s, when de eloping an app op ia e discoun a e o a pa icula
a ge i m, conside a ion mus hen be gi en mo e speci ic cha ac e is ics, such as indus y di e ences
and i m size adjus men s. Indus y p emiums a e also a ailable om a a ie y o sou ces, such as
Damoda an (2024a).
I he a ge i m is a small i m, howe e , he issue o an app op ia e small i m p emium in
de e mining he discoun a e mus be gi en se ious conside a ion. Tha is he ocus o his s udy.
2. Commonly Used Size P emiums: Publicly-T aded Fi ms
The ela ionship be ween he size o he i m and he alue o he i m has ecei ed signi ican
a en ion. F om a heo e ical poin o iew, he a gumen is basically wo- old. Fi s , la ge i ms a e
belie ed o ha e mo e ba gaining and nego ia ing powe in he ma ke wi h hei ups eam supplie s
and downs eam cus ome s. The issue o asymme ic ba gaining powe enjoyed by la ge i ms has
been discussed o decades in he indus ial o ganiza ion and s a egic managemen ields unde
a ious headings, such as “ e ical quasi-in eg a ion” and “bila e al ma ke powe ” (Blois, 1972;
Galb ai h and S iles, 1983; Galb ai h and DeNoble, 1992; Po e , 1976). In e es in he impac o
asymme ic ba gaining powe on supply chain ela ionships con inues o he p esen ime, wi h
empi ical esea ch consis en ly showing signi ican cos /p ice ad an ages o la ge i ms. (e.g., Pico
e al, 2023; Chi and Goo, 2023; Jo, Jeong and Kim, 2023). Second, la ge i ms a e belie ed o ha e
32The Jou nal o En ep eneu ial Finance, Vol. 27, Iss. 1 [2025], A . 2
h ps://digi alcommons.peppe dine.edu/je / ol27/iss1/2
DOI: 10.57229/2373-1761.1498
scale ad an ages bo h in inpu componen s, such as hi ing be e wo ke s and ecei ing bulk discoun s,
and in ou pu componen s, such as size ad an ages in dis ibu ion and p oduc placemen . The
impac s o bo h o hese o ces, ma ke powe and scale economies, should be e lec ed in he i m’s
ea nings.
The impac o i m size on he cos o equi y has been almos exclusi ely examined wi h
publicly- aded i ms, as e ealed by he size p emium published by a ious inancial da a p o ide s,
such as K oll (2024), Du and Phelps (2015-2017) and Ibbo son (Ibbo son and Ha ing on, 2020).
Con a y o he indings o a disappea ing size e ec ha some ea ly esea ch indica ed (e.g., Foe s e
and Po e , 1992; Ho owi h, Lough an and Sa in, 2000) he e is subs an ial e idence ha a small i m
isk p emium does exis wi h publicly- aded i ms, in bo h he U.S. and in e na ional ma ke s (e.g.,
Amel-Zadeh, 2011; Elyasiani, Gamba elli, and Muzzioli, 2020; Yada , Pahi and Gangakhedka , 2022;
K oll, 2024; Ibbo son and Ha ing on, 2020; Khan, Hassan and Ali, 2012). Fo yea s, K oll (which
me ged wi h Du and Phelps in 2018) and o he inancial da a p o ide s ha e calcula ed he size
p emium using a ious isk adjus ed s ock p ice da a ca ego ized by he size deciles o publicly- aded
i ms, wi h he 10 h decile being he smalles 10% o he publicly- aded i ms examined.
When aluing a small closely-held i m, howe e , he e is a p oblem wi h using his “decile”
p emium - he a e age size o i ms in he 10 h decile o publicly- aded i m is app oxima ely
$30million in ma ke capi aliza ion. In compa ison, he as majo i y o closely-held i ms ha e ma ke
capi aliza ions signi ican ly less, pa icula ly i he a ge i m is a ypical owne -ope a ed business. In
ac , he median ma ke alue in he DealS a da abases o closely-held i m sales ansac ions om
2020 o 2024 was app oxima ely $400,000; wi h a e age ma ke alues anging somewha highe o
lowe depending on he indus y sec o . Compa ing a small closely-held i m e en wi h he 10 h decile
o publicly- aded i ms is like compa ing apples and o anges, a bes .
Recognizing his, K oll and o he s, now epo using ou , mo e de ailed 10 h decile ca ego ies
in hei analysis o U.S. publicly- aded i ms - 10z, 10y, 10x, and 10w, wi h 10z being he smalles .
Acco ding o ecen K oll calcula ions, he small i m p emiums o hese he di e en ca ego ies o
publicly- aded U.S. i ms a e shown below o 2021 and 2022. While he small i m p emium can
a y om yea o yea (declining sligh ly somewha in he las decade o all deciles) i has been
ela i ely s able a he smalles ca ego y, 10z. Fo example, om 2012 o 2022 he K oll 10z size
p emium has anged om a high o 11.77% (2012) o 11.17% (2022). Table 1 shows he K oll small
i m decile calcula ions o 2021 and 2022.
Table 1: Size P emiums o Publicly-T aded Fi ms – K oll Ca ego ies o Ma ke Capi aliza ion
Fi m Size Ca ego y
Mid-Poin Capi aliza ion
2022
2021
10z
$6,915,000
11.17%
11.29%
10y
$15,920,000
6.34%
6.60%
10x
$22,100,000
4.54%
4.65%
10w
$27,035,000
2.34%
2.60%
9
$45,890,000
2.10%
2.29%
8
$96,755,000
1.21%
1.46%
7
$173,545,000
1.34%
1.54%
6
$272,345,000
1.18%
1.37%
5
$414,235,000
0.89%
1.09%
4
$661,625,000
0.65%
0.75%
3
$1,247,740,000
0.55%
0.71%
2
$2,642,930,000
0.43%
0.49%
Howe e , e en he 10z ca ego y, which epo s he smalles publicly- aded i ms, has a mid-
poin equi y capi aliza ion nea $7million, which is s ill many imes la ge han he a e age
33
Galb ai h: Size P emium in Small Business Valua ionPublished by Peppe dine Digi al Commons, 2025
capi aliza ion epo ed in he da abases o closely-held i m sales ansac ions. Howe e , he as
majo i y o small business app aise s a e augh in hei aining classes o use he 10z (some s ill jus
use he 10 ca ego y) o de e mine he small i m equi y p emium.
When aluing a ypical closely-held business wi h a much smalle capi aliza ion, an ob ious
p oblem is e iden - one can see a clea non-linea g ow h in he size p emium as he i m ge s smalle
(Table 1 and Figu e 1). I is also e iden om he decile calcula ions ha he d ama ic inc ease in size
p emiums appea o occu p ima ily in he smalles size ca ego ies. This also indica es ha e en he
mo e de ailed decile ca ego iza ion may no cap u e he app op ia e size p emium o he smalles
i ms, pa icula ly i hey all in he lowe capi aliza ion ange o he 10z de ini ion.
Figu e 1: Repo ed Small Fi m Equi y P emiums: K oll Ca ego ies 6-10z (A e age 2021 & 2022)
3. Analyzing he Size P emium: Publicly-T aded Fi ms
We app oach he p oblem o es ima ing a mo e accu a e small i m p emium o e y small, closely-
held i ms in se e al ways. Fi s , o compa ison pu poses we simply use a eg ession o he K oll da a.
We a emp ed se e al di e en models (linea , loga i hmic, exponen ial, powe cu e) and using
di e en K oll ca ego ies. Since his is an exe cise in ex apola ion, ob aining a model wi h a good i
(o R2) is c i ical. A e a emp ing se e al di e en model speci ica ions, we ound ha a loga i hmic
eg ession model using he midpoin capi aliza ion o he 7,8,9, 10w, 10x, 10y, and 10z ca ego ies
p o ides a good i (R2 = 0.775). A simila model was ound using he 2 o 10z ca ego ies, al hough
he R2 was no as high, while he 9 o 10z ca ego ies p o ided a sligh ly be e i (R2 = 0.859), bu
wi h ewe da a poin s. Fo he size p emium me ic o his analysis, we a e age he 2021 and 2022
da a. I should be no ed ha while he e a e only echnically se en da a poin s in ou eg ession, each
o he K oll ca ego ies is made up o hund eds o i ms, o a o al o app oxima ely 2,000 publicly-
aded i ms o he ca ego ies 7 o 10z. The esul s o he loga i hmic model a e shown below.
Table 2: Loga i hmic Model, Small Fi m P emium – K oll Ca ego ies o Ma ke Capi aliza ion, 7 o 10z
Va iable
B
T-s a is ic
P ob
Cons an
14.427
5.650
<0.002
Ln(Fi m Capi aliza ion)
-2.891
-4.148
<0.009
34The Jou nal o En ep eneu ial Finance, Vol. 27, Iss. 1 [2025], A . 2
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DOI: 10.57229/2373-1761.1498
To see he di e ence, i we assume a i m has an app oxima e $300,000 equi y capi aliza ion,
using ou i s loga i hmic eg ession model a i m o his size would ha e a small i m p emium o
17.91% e sus 11.17% i one simply uses he 2022 10z ca ego y om K oll. This signi ican ly changes
he o e all discoun a e calcula ions, which would ha e a majo impac on he es ima ed ma ke alue
o he a ge i m.
Howe e , while he da a om publicly- aded i ms ce ainly sugges a non-linea ela ionship
be ween i m size and i s equi y p emium, he e a e he ypical alidi y conce ns abou ex apola ing a
model i ed o a pa icula se o da a o o ecas some hing ou side he ange o he o iginal da a se
o scope. While in ui i ely a ac i e, he isks o making p edic ions beyond he ange o he da a used
o es ima e he o iginal model a e well known, no only in inance bu many o he ields such as
ecology, epidemiology and enginee ing. This is o en called a “ anspo abili y” o gene alizabili y
alidi y p oblem whe e he s udy sample does no o e lap wi h he a ge popula ion (Lesko e al,
2020), ha is, in ou case, he much smalle size ange o closely-held i ms. In o de o add ess his
ex apola ion alidi y issue, simula ion s udies a e o en sugges ed (e.g, Ba ley e al, 2019). Ano he
op ion is o analyze highly compa able o ep esen a i e da ase s ha co e he da a ange o in e es
(e.g., Smi h, 2019), hus b inging he ea men o ex e nal alidi y in line wi h in e nal alidi y (e.g.,
Lesko e al, 2020). In his pape , we a e he e o e in e es ed in explo ing whe he he same non-linea ,
nega i e small size p emium con inues o smalle , closely-held i ms. This is ou in e es o wo
easons – i s , o add ess he alidi y o ex apola ing size p emium de e mined om much la ge
publicly- aded da a o much smalle , closely-held i ms, and second, o de elop a simila model o
size p emiums using ac ual ansac ion da a o small closely-held i ms.
4. The Impac o Size: Closely Held Fi ms
I is impossible o exac ly eplica e he analysis o publicly- aded i m size p emiums wi h ansac ion
da a o closely-held i ms o se e al easons. Fi s , unlike publicly- aded i ms whe e daily s ock
p ices can be examined o isk-adjus ed ma ke e u ns, closely-held i m ansac ion da a is only a
one- ime e en upon he sale o he business. Gi en his, ou analysis canno calcula e a be a-adjus ed
isk associa ed wi h he small size p emium. Howe e , ansac ion da a does ep esen he only ai
ma ke alue de e mina ion o closely-held i ms.
Second, as p e iously men ioned, no mally ansac ion da a o a closely-held i m is epo ed
as a “ma ke ” alue o a “ ansac ion p ice”. A ma ke alue o ansac ion p ice ep esen s he o al
p ice o he deal, excluding any deb and cash (since deb and cash a e a ely assumed du ing he sale
o a closely-held i m). This is simila o a eal es a e sale, whe e a house is sold and subsequen ly
eco ded in he eal es a e ansac ion da abases a a p ice ha doesn’ inco po a e any ou s anding
mo gage agains he p ope y. On he o he hand, he analysis o publicly- aded i m da a, including
he K oll da a, is based on s ock p ice da a, which is an “equi y” alue.
Thi d, in any closely-held company he owne s can signi ican ly in luence epo ed ea nings,
pa icula ly ela ed o con ol o e sala ies paid o hemsel es. Fo example, some owne s o closely held
i ms may pay hemsel es a la ge sala y, hus educing epo ed ea nings, while o he owne s o closely
held i ms may no pay hemsel es a sala y, hus esul ing in highe epo ed ea nings and aking pe sonal
income h ough owne “d aws”. When pe o ming a business alua ion using he i m’s ea nings, i o en
becomes necessa y o no malize he inancial s a emen s o e lec wha an a ms-leng h in es o migh
do i hey we e o in es -in, o pu chase, he company.
Howe e , we a e no in e es ed in exac ly eplica ing he analysis om publicly- aded i ms, bu
a he in e es ed in wo issues. Ou i s in e es , and he ocus o Analysis 1, is de e mining whe he
small, closely-held i ms ollow he same non-linea , loga i hm pa e n as seen in Table 2 using
35
Galb ai h: Size P emium in Small Business Valua ionPublished by Peppe dine Digi al Commons, 2025
compa able me ics. I closely-held small i ms ollow he same pa e n as seen o publicly- aded i ms,
hen we ha e add essed he majo alidi y conce ns ega ding he ex apola ion o he es ima ed loga i hm
eg essions o he la ge i m ca ego ies such as shown in he K oll calcula ions. Second, using ansac ion
da a o closely-held i ms, can we de elop a model ha does, in ac , easonably es ima e he size
p emium in de e mining he cos o equi y discoun a e o smalle i ms? This is he ocus o Analysis
2.
5. Da a
To examine his ela ionship o closely-held i ms, da a was ob ained om a p op ie a y da abase o
sales ansac ions o closely-held i ms. We use he DealS a ’s da abase. DealS a ( o mally P a ’s S a s)
is he wo ld’s la ges da abase o sales ansac ions o closely-held i ms. Da a comes om a a ie y
o sou ces, including business b oke s and me ge and acquisi ions p o essionals. The ansac ion da a
con ains se e al ypes o in o ma ion ela ed o each ansac ion, including he ma ke p ice, he deal
s uc u e, he NAICS codes, p oduc desc ip ion, and he numbe o employees. Also included a e
e enue, income and some imes balance shee i ems. The i ms include a b oad a ay o businesses,
wi h he as majo i y o i ms unde $10million in e enues.
We used sales ansac ions o he yea s 2016 o 2019, and 2022 o 2024. We exclude 2020-
2021 o con ol o he impac o he Co id-19 yea s. The e is ample e idence ha mos small
businesses we e d ama ically impac ed by he Co id-19 es ic ions o 2020, while 2021 is conside ed
a yea o pen -up demand o many indus y sec o s (Do e and Ma ch, 2022). We examined he b oad
manu ac u ing, e ail, and wholesale indus y sec o s (NAICS 31, 32, 33, 42, 44, 45), esul ing in a o al
sample size o 2,092. We examined hese sec o s since hese indus ies a e ela i ely s able, hey a e
no as s ongly in luenced by pe sonal goodwill componen s such as he a ious se ices sec o s, and
hey a e no hea ily egula ed, such as u ili ies. While ecognizing he e a e p obably indus y speci ic
di e ences, since K oll (and o he inancial se ice p o ide s) pool da a o hei epo ed size
p emiums, and since business alua o s look o a gene alized small i m p emium in hei analysis,
we also pool hese sec o s o he p esen analysis.
We pe o m wo di e en analyses. The i s analysis (Analysis 1) examines whe he e y small,
closely-held i ms ollow he same non-linea , loga i hm pa e n as seen in s udies o publicly- aded i ms.
This analysis is designed o add ess he alidi y conce ns ega ding he ex apola ion o he es ima ed
loga i hm eg essions o he la ge i m ca ego ies. The second analysis (Analysis 2) de elops a model
ha easonably es ima es he size p emium in de e mining an equi y-based discoun a e o smalle i ms
using a subse o he ansac ion da a.
6. Analysis 1: Small Size and Selle s Disc e iona y Cash low Capi aliza ion Ra es
Fo ou i s analysis, we a e ini ially in e es ed in he “shape” o he ela ionship be ween i m size, as
measu ed by ma ke alue o ansac ion p ice, and a easonably compa able measu e o alue. This
speci ically add esses he alidi y issue o ex apola ing small i m p emium es ima es om models
de eloped om publicly- aded i m da a. To con ol o he issue o owne ’s sala y iden i ied abo e, we
use a selle ’s disc e iona y cash low measu e, o SDCF (combina ion o ne ea nings, owne ’s
compensa ion, and non-cash cha ges, such as dep ecia ion).
The SDCF model is a ac i e since i is bo h a commonly used me ic o aluing small, closely-
held i ms and is egula ly eco ded in ansac ion da abases o closely-held i ms. We hen di ide SDCF
by he ansac ion p ice o ob ain a SDCF capi aliza ion a e (SDCF CapRa e). The SDCF CapRa e is
36The Jou nal o En ep eneu ial Finance, Vol. 27, Iss. 1 [2025], A . 2
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DOI: 10.57229/2373-1761.1498
he e o e simila o an ea nings capi aliza ion a e, which di ides a i m’s adjus ed ea nings by he i m’s
equi y p ice bu a he uses a o al owne s cash low measu e.
Figu e 2 shows he plo o ou ull sample, using he ma ke alue o ansac ion p ice o he
size dimension and he SDCF CapRa e. This g aph appea s o clea ly indica e he same non-linea
nega i e ela ionship be ween i m size and a capi aliza ion a e measu e as seen in he publicly- aded
da a examined ea lie .
Figu e 2: SDCF CapRa es e sus Fi m Ma ke Value: Small Closely-Hold Fi ms
We hen calcula ed bo h a linea eg ession and a loga i hm eg ession. Fo he i m size
dimension, we again use he ac ual ansac ion p ice o ma ke alue. Howe e , abou 10% o he
ansac ions in he da abase also p o ide balance shee da a o he i m. Fo hese i ms i is also
possible o calcula e an app oxima ion o o al i m equi y alue by simply sub ac ing long- e m deb
om he ansac ion p ice/ma ke alue. This i m o al equi y alue is simila o he “capi aliza ion”
e minology o i m size commonly used o publicly- aded i ms.
We con olled o possible ou lie s by limi ing SDCF CapRa es g ea e han 10% (o
T ansac ion P ice/SDE mul iples<10), since 97% o he calcula ed SDCF mul iples a e less han 10).
This also con ols o i ms epo ing li le o no posi i e cash low, o possibly mis-en e ed da a. We
also did no include i ms designa ed as “de elopmen s age i ms”, since a capi aliza ion o ea nings
o cash low app oaches would gene ally no be app op ia e o hese ypes o i ms.
Since we a e in e es ed in he size impac o small i ms, we only examined U.S. i ms wi h
ma ke alues less han $10million, pu posely esul ing in some o e lap wi h he 10z ca ego y o
publicly- aded i ms. Table 3 shows he esul s o ou eg ession analysis.
37
Galb ai h: Size P emium in Small Business Valua ionPublished by Peppe dine Digi al Commons, 2025
indus ies also exhibi a simila ela ionship be ween size and i m p emiums o de e mining an
app op ia e ea nings discoun a e, we did no include hem in ou model es ima es.
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