Firm Product Concentration and Asset Prices

62 Pages Posted: 2 Dec 2019 Last revised: 23 Aug 2021

See all articles by Nuno Clara

Nuno Clara

Duke University - Finance; London Business School

Alexandre Corhay

University of Toronto - Rotman School of Management

Howard Kung

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: August 21, 2021

Abstract

Average product concentration within firms has been declining since the mid-2000s. We find that lower product concentration is associated with lower productivity, expected returns, and idiosyncratic volatility across firms. These empirical relations are explained in a general equilibrium model of multiproduct firms with endogenous firm boundaries. Parameters governing the flexible production technology are identified using the GIV approach of Gabaix and Koijen (2020) by exploiting fat tails in the distribution of product mix. Overall, this paper highlights the importance of firm boundaries for explaining asset prices and firm dynamics.

Keywords: Firm Boundary, Multi Product Firm, Asset Pricing, Imperfect Competition, Financial Frictions, Idiosyncratic Volatility, Productivity, Secular Trends

Suggested Citation

Clara, Nuno and Corhay, Alexandre and Kung, Howard, Firm Product Concentration and Asset Prices (August 21, 2021). Available at SSRN: https://ssrn.com/abstract=3488428 or http://dx.doi.org/10.2139/ssrn.3488428

Nuno Clara

Duke University - Finance ( email )

Durham, NC 27708-0120
United States

HOME PAGE: http://www.nunoclara.com

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Alexandre Corhay

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
4169780512 (Phone)

Howard Kung (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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