Industry competition and fundamental analysis

Irfan Safdar

Journal of Accounting Literature, 2016, vol. 37, issue C, 36-54

Abstract: Economic theory suggests that profits of firms in industries with higher competition are less persistent and more volatile than in industries with lower competition (Stigler, 1963; Mueller, 1977). Extending this reasoning, I hypothesize that accounting-based fundamentals are more effective in predicting performance in industries with lower competition. I find that a measure of fundamentals (Piotroski’s F-score) has greater ability to identify potentially mispriced securities in industries with lower competition. The results are robust to using a variety of competition measures and imply that industry competition is an important consideration in the application of fundamental analysis.

Keywords: Financial statement analysis; Industry competition; Stock return predictability (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joacli:v:37:y:2016:i:c:p:36-54

DOI: 10.1016/j.acclit.2016.09.001

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