Graduation Year

2025

Date of Submission

4-2025

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

Matthew Magilke

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© 2025 Diana B Carranza

Abstract

This study examines whether the cumulative abnormal returns (CARs) of small-cap companies are more sensitive to accounting metrics such as return on assets (ROA), return on investment (ROI), return on equity (ROE), and the debt-to-equity (D/E) ratio compared to large-cap companies. Using a sample of firms from the S&P 500 and S&P 600, moderated linear regression models were applied to test the relationship between profitability, leverage, and stock price reactions. The models include interaction terms with firm size and control for time-fixed effects. The results show that while profitability metrics are positively and significantly associated with CARs for large-cap firms, small-cap firms exhibit weaker sensitivity, and the D/E ratio has no significant effect for either group. Overall, accounting metrics explain only a small portion of variation in CARs, suggesting that other factors such as analyst coverage and broader market conditions play a larger role in influencing investor responses.

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