Product Market Threats: Implications for Future Performance and its Use by Market Participants

50 Pages Posted: 21 Jan 2021 Last revised: 6 Jun 2024

See all articles by Marcus Kirk

Marcus Kirk

University of Florida - Fisher School of Accounting

Jeffery Piao

University of Florida

Diana Weng

Baruch College-CUNY

Date Written: June 06, 2024

Abstract

This study examines the informational value of product market competition from firms' narrative disclosures, beyond existing industry-based or 10-K based competition measures. Consistent with Fluidity capturing dynamic competitive pressures and instability related to emerging threats from rivals, we find that product market fluidity has large incremental explanatory power for future performance and uncertainty. Specifically, higher Fluidity (i.e., higher product market threats) is negatively associated with future earnings and operating cash flows and positively associated with the variability of future earnings and operating cash flows. We also find Fluidity has predictive power to components of profitability and income statement items, shedding light on the mechanisms through which product market threats manifest to future performance. However, capital market participants do not fully use this information leading to predictable future stock returns and sell-side analyst forecast errors. Overall, our findings suggest that the dynamism and fluidity in a firm's product market space convey valuable and distinct information to capital market participants.

Keywords: Voluntary disclosure, information content, capital markets, fundamental analysis JEL Classification: D53, M41, G11, G12, G14

JEL Classification: D53, M41, G11, G12, G14

Suggested Citation

Kirk, Marcus and Piao, Jeffery and Weng, Diana, Product Market Threats: Implications for Future Performance and its Use by Market Participants (June 06, 2024). Available at SSRN: https://ssrn.com/abstract=3728729 or http://dx.doi.org/10.2139/ssrn.3728729

Marcus Kirk (Contact Author)

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States
352-273-0222 (Phone)

Jeffery Piao

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Diana Weng

Baruch College-CUNY ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
229
Abstract Views
993
Rank
252,413
PlumX Metrics