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A recent article from the Harvard Business Review (attached as pdf ) highlights five trends that contribute to why the stock markets in recent years have been pushing company valuations away from their fundamental values. In your opinion, do these trends help explain why investors favor larger companies over smaller and medium-sized companies? What are the implications of these trends for smaller companies access to capital and cost of equity capital, relative to larger companies? What about their access to and cost of debt? Do you think investors’ preferences for larger companies exacerbate the impact of Federal Reserve interest rates hikes on cost of capital for smaller firms as opposed to larger corporations?

One interesting aspect of the above questions is that – like all of the finance – answers to them depend on time horizon chosen. In other words, what might be an adverse headwind in the short run can turn into a supportive tail wind in the long run, and vice versa. Alternatively, of course, years of hardship or higher costs can compound into a total disaster. The discussion of how stock market valuations of larger firms can translate into short run vs long run impacts on smaller companies’ access to capital is never really settled definitively, but it is too important to set aside and write off as too complex or too uncertain.

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