Firm power in product market and stock returns

Surendranath Jory and Thanh Ngo

The Quarterly Review of Economics and Finance, 2017, vol. 65, issue C, 182-193

Abstract: We compare the buy-and-hold abnormal returns (BHARs) among the deciles portfolios of firms based on their product market power. We document that the value-weighted portfolios (equally-weighted portfolios) of firms with the strongest product market power generate one-year BHARs ranging from 13.96% (8.85%) to 16.90% (10.63%) higher than the portfolios of the weakest firms. The abnormal returns persist even when we control for industry concentration level (as suggested by Hou and Robinson (2006)), common firm characteristics and alternative industry classifications. The higher returns accrued to the portfolios of firms with the strongest product market power can be attributed to the higher future standardized earnings surprises generated by these firms and their lower idiosyncratic volatility.

Keywords: Product market competition; Standardized earnings surprises; Buy-and-hold abnormal returns; Idiosyncratic risk (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:65:y:2017:i:c:p:182-193

DOI: 10.1016/j.qref.2016.09.008

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