Competitive advantage and firm, industry, and country effects: An asset pricing perspective

Tobias Kohls, Ferdinand Mager and Tobias Regele

Journal of Economics and Business, 2023, vol. 127, issue C, No S0148619523000309

Abstract: We examine the relation between competitive advantage, its underlying drivers, and abnormal stock returns. We use a comprehensive global dataset covering 22 years. To measure competitive advantage, we use the cash flow return-on-investment (CFROI®) metric, which allows for consistent comparisons across industries, countries, and periods. We find a positive relation between competitive advantage and stock returns after controlling for common risk factors. Industry-based advantages are more important than resource-based advantages in explaining abnormal stock returns in developed markets. This result contrasts with most studies in strategic management, which mostly base their analysis on accounting-based profitability metrics. Country effects play a minor role.

Keywords: Competitive advantage; Firm effects; Industry effects; Country effects; Cross section of returns (search for similar items in EconPapers)
JEL-codes: G12 G15 L22 L25 M21 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:127:y:2023:i:c:s0148619523000309

DOI: 10.1016/j.jeconbus.2023.106137

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