Corporate Rivalry and Return Comovement

48 Pages Posted: 23 Jul 2018 Last revised: 30 Mar 2020

See all articles by Eric de Bodt

Eric de Bodt


B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Richard Roll

California Institute of Technology

Date Written: March 27, 2020


We examine whether corporate rivals react to industry-specific competition-shocks by increasing product differentiation or, alternatively, by lowering differentiation to capture scale-economies. As rival reactions affect intraindustry cash-flow correlations, these two hypotheses imply differential changes in extra-factor, within-industry stock return comovement. Consistent with the cost-reduction hypothesis, idiosyncratic return comovement increases significantly on average, and more so for industry laggards. Industries where competition-shocks significantly affect return comovement also develop higher cost-efficiency measures. Finally, greater return comovement increases the likelihood that two rival firms will merge and raises subsequent industry average return comovement.

Keywords: Return co-movement, competitive shocks, rival reactions, differentiation, M&As

JEL Classification: G34, G38, L10, L25

Suggested Citation

de Bodt, Eric and Eckbo, B. Espen and Roll, Richard W., Corporate Rivalry and Return Comovement (March 27, 2020). Tuck School of Business Working Paper No. 3218544, Available at SSRN: or

Eric De Bodt

NHH-Caltech ( email )

Kraainem, 1950
+32 475 24 01 69 (Phone)

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)


European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Richard W. Roll

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)

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