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Product market competition and industry returns

Bustamante, Maria Cecilia and Donangelo, Andres (2014) Product market competition and industry returns. . Social Science Research Network (SSRN), London, UK.

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Abstract

This paper shows that product market competition has two opposing effects on asset returns. The first relates to the pro-cyclical nature of the value destruction from expansion of competitors, which lowers exposure to systematic risk in more competitive industries. The second is related to the narrower profit margins due to competition, which increase exposure to systematic risk. We find that the first effect dominates the second, so that firms in more competitive industries generally earn lower asset returns. Our results are robust to using five alternative measures of competition and to controlling for the sample selection bias of publicly-listed firms.

Item Type: Monograph (Working Paper)
Official URL: http://www.ssrn.com/en/
Additional Information: © 2014 The Authors; Presented at Minnesota Mini Asset Pricing Conference 2012, Western Finance Association Meeting Paper 2013, European Finance Association Meeting 2013
Divisions: Finance
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure: Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 21 Apr 2015 08:25
Last Modified: 10 May 2019 23:21
URI: http://eprints.lse.ac.uk/id/eprint/61655

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