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Real and Financial Industry Booms and Busts

46 Pages Posted: 1 Sep 2008 Last revised: 20 Jul 2010

Gerard Hoberg

University of Southern California - Marshall School of Business

Gordon M. Phillips

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

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Date Written: August 2008

Abstract

We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. 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. We also find that analyst estimates are positively biased and returns comove more when industry valuations are high in competitive industries. In concentrated industries these relations are weak and generally insignificant. Our results suggest that when industry stock-market valuations are high, firms and investors in competitive industries do not fully internalize the negative externality of industry competition on cash flows and stock returns.

Suggested Citation

Hoberg, Gerard and Phillips, Gordon M., Real and Financial Industry Booms and Busts (August 2008). NBER Working Paper No. w14290. Available at SSRN: https://ssrn.com/abstract=1261476

Gerard Hoberg

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Gordon Phillips (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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