Let's talk about VSL and Scale and smaller hands and other wonderful things...
Instruments- discuss specific features, luthiers, instrument problems & questions
The conventional wisdom seems to be that for those who chord a lot and have smaller hands, a shorter VSL around 26" is better than a more standard VSL around 28". And although 2 inches in total VSL might not seem like much, it makes a significant difference in fret spacing.
I would just make two points here to qualify that conventional wisdom.
First, our hands stretch. It might seem at first that playing a 1-2-4 chord on an instrument with a 28" or 29" VSL is a bit of a stretch, but remember that that is probably the hardest chord to finger and also that as you play more your hands will stretch. Even after 40 years of playing the guitar and 6 years on the dulcimer I started doing an exercise last month that was a real stretch for me. My fingers and the spaces between them were sore from playing it so much. At first I didn't think I'd ever be able to make those stretches cleanly and without pain. But now I can do both. The muscles in our hands need to stretch and exercise just like the other muscles in our bodies. Don't jump to a shorter VSL without actually working on your fingering and stretching your hand muscles first. You might surprise yourself.
Second, in addition to the decreased sustain that Joy mentions, a shorter VSL means smaller frets. That may seem like an advantage down low toward the nut, but as you play up the neck, some of those frets will get awfully small, and playing there will be a real challenge. Most beginners don't find themselves playing up that high, but as we progress and feel more comfortable with the fretboard, we do indeed jump over those hurdles and start fingering the fretboard well into the second octave. Watch Guy Babusek, for example. He often plays high up the fretboard, and I would bet that he would not be able to do so as successfully on an instrument with a shorter VSL.

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