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Real and Financial Industry Booms and Busts

Gerard Hoberg

University of Maryland - Department of Finance

Gordon M. Phillips

University of Southern California; 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

Accepted Paper Series

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Date posted: March 21, 2008 ; Last revised: April 29, 2009

Suggested Citation

Hoberg, Gerard and Phillips, Gordon M., Real and Financial Industry Booms and Busts (April 27, 2009). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1109124

Contact Information

Gerard Hoberg
University of Maryland - Department of Finance ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://www.rhsmith.umd.edu/finance/faculty/hoberg.aspx
Gordon M. Phillips (Contact Author)
University of Southern California ( email )
Marshall School of Business
Los Angeles, CA 90089
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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