Real and Financial Industry Booms and Busts
University of Southern California - Marshall School of Business
Gordon M. Phillips
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
April 27, 2009
Journal of Finance, Forthcoming
We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. Our results show how real and financial factors interact in industry business cycles. In competitive industries, we find that high industry-level stock-market valuation, investment and new financing are followed by sharply lower operating cash flows and abnormal stock returns. Analyst estimates are positively biased and returns comove more in competitive industries. In concentrated industries these relations are weak and generally insignificant. Our results are consistent with firms and investors in competitive industries not fully internalizing the negative externality of industry competition on cash flows and stock returns.
Number of Pages in PDF File: 42
Keywords: Product Markets, competition, stock, returns, booms, busts, analysts
JEL Classification: G3, G30, G31, G32
Date posted: March 21, 2008 ; Last revised: April 29, 2009
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