Question

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Answer 1

ANSWER:

They Often Pay Large Cash Dividends.

Since small cap companies are growing companies, they need capital to invest to grow. As per pecking order theory companies will like to prefer retained earnings for investment. Hence small cap companies do not pay large cash dividends . Instead they invest retained earnings in business.

Small cap companies expected returns are higher and risk also are higher. They are more sensitive to market movement. They have historically given higher investment returns.They are generally young growing companies