We report a novel strategy for preparing epoxy thermosetting systems with low shrinkage and improved flexibility an degradability. Diglycidyl ether of bisphenol A (DGEBA) resin was cured with different proportions of hydroxyl-terminated hyperbranched polymer (HBP), using ytterbium triflate as a cationic initiator. The curing process was studied using differential scanning calorimetry and thermomechanical analysis. Characterization of the resulting materials was evaluated using DSC, thermogravimetric analysis, and dynamic mechanical thermal analysis, and the fracture surface was studied using scanning electron microscopy (SEM). When DGEBA is modified with HBP, it shows a homogeneous morphology and the HBP is incorporated chemically into the network, because hydroxyl groups can react with epoxides under cationic conditions. Higher proportions of HBP reduce the glass transition temperature (T-g) and thermal stability and increase the flexibility. When the proportion of HBP in the curing mixture is increased, the degree of shrinkage is reduced significantly and expansion can be observed. (C) 2008 Wiley Periodicals, Inc. J Appl Polym Sci 111: 2822-2829, 2009