Real and Financial Industry Booms and Busts

Hoberg, Gerard; Phillips, Gordon M.

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Real and Financial Industry Booms and Busts

Journal of Finance, Forthcoming

42 Pages Posted: 21 Mar 2008 Last revised: 29 Apr 2009

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written: April 27, 2009

Abstract

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.

Keywords: Product Markets, competition, stock, returns, booms, busts, analysts

JEL Classification: G3, G30, G31, G32

Suggested Citation: 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: https://ssrn.com/abstract=1109124