Absolutely right. It's a leverage thing, think about using a longer lever (the smaller diameter MC) moving further vs a shorter lever (bigger bore MC) moving a smaller distance. I personally swapped a 1999 VFR800F M/C (which I just happened to have handy) onto my 1990 ST11, so a 12.7mm M/C replacing a 14.0mm standard M/C. I also installed braided lines and EBC HH pads. This changed the brakes from wooden to having a nice amount of grab. Any added mushiness from the smaller MC was offset by the braided lines.
I was a bit bored tonight and gave this a little bit too much thought, which I have written below. If you have the time and inclination, give it a read and interject your own comments.
There are two variables potentially in play if you swap out the entire m/c. One is the size of the m/c bore, the other is the leverage between the brake lever and the m/c plunger. Since I've never done a swap, I can't say if most/all motorcycle m/c have the same brake lever to plunger leverage ratios or not. For the sake of argument, let's say they're the same for now.
Using a little math to describe the differences, let's say the original m/c has a bore area of 0.3 in2, and the new m/c is 0.25 in2. If a given amount of brake lever pressure develops say 10lbs of force at the m/c plunger, then that's applying a pressure of 40psi for the new m/c and 33.33psi for the original. Pressure is conserved inside the system, so that same pressure is applied at the brake pads.
If the caliper area is 2.0 in2, then the new m/c will be applying 80 lbs of force at the caliper, while the original will apply 66.67 lbs. The hydraulic leverage is 0.125:1 for the new m/c and 0.150:1 for the original, so if the brake lever creates 0.5" travel at the m/c plunger, the brake pads will travel by 0.0625" with the new m/c and 0.0750" with the original. In both cases, the lever applies 5.0 in-lb of work to the m/c, and that same amount of work is applied at the brake pads, work is conserved.
Now let's say that the first 0.0625" is what is required just to get the pads to contact the rotor before the real braking starts, and the effective force on the lever up to that point is essentially zero because there's no resistance from the pads. The lever will need to be moved a bit further on the new m/c compared to the original to get to that point. Also, the math shown in the previous paragraph shows that for any given force applied at the lever, the force applied to the pads is higher with the new m/c by the ratio of 80/66.67. Once the pads are firmly pressed against the rotor, neither the pads nor the rotors compress, so the movement essentially stops at that point and the braking forces are transferred directly from the lever to the pads. As more force is applied to the brake lever, the new m/c will provide a proportionally higher force to the brake pads compared to the original m/c. This will result in greater overall braking force, but may make the braking force a bit more 'grabby' than the original m/c because the braking force at the pads will increase from zero to lockup with less pressure applied at the lever.
So now to my question. I'd thought before that the smaller diameter m/c would provide a bit better 'feel' to the braking because of the increased leverage factor requiring more lever travel for a given amount of brake pad travel. But, after drawing it out above, it would appear that the opposite is true, the higher force leverage makes the applied braking force curve steeper, which would seem to make it have less 'feel', although providing greater overall power for a given force at the lever.
To adjust the force curve so its less steep, the leverage between the brake lever and the m/c plunger could be changed, but then that would just bring us back towards the same overall power ratio as the original m/c, and it looks like a TANSTAAFL situation. You can have more power, or more feel, but not both, you give up some of one for some of the other.
But, this got me thinking about how every bike I've owned since the late '80s I've swapped out the rubber brake lines for SS braided ones, and the braking 'feel' improved on every bike. The only difference with the braided lines is with less brake line expansion/swelling going on during braking, the lever force is more directly applied to the brake pads because there is less loss of pressure due to line expansion. That would mean for a given amount of pressure at the lever, more pressure is applied at the caliper with the braided lines compared to the stock rubber ones, and the force curve would be slightly steeper with the braided lines. So, from that I have to conclude that better braking 'feel' is probably more a result of greater pad pressure for a given lever input, and not due to a more gradual force curve.
Since you changed all three at once, lines, pads, and m/c, its probably hard to sort out the individual contribution of each component, but someone else on the forum had also done the m/c swap with a smaller diameter and also claimed it gave better power/feel.