Real Options, Product Market Competition, and Asset Returns
AbstractWe study how competition in the product market affects the link between firms' real investment decisions and their asset return dynamics. In our model, assets in place and growth options have different sensitivities to market wide uncertainty. The strategic behavior of market participants influences the relative importance of these components of firm value. We show that the relationship between the degree of competition and assets' expected rates of return varies with product market demand. When demand is low, firms in more competitive industries earn higher returns, whereas when demand is high firms in more concentrated industries earn higher returns. Copyright (c) 2009 the American Finance Association.
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Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 64 (2009)
Issue (Month): 2 (04)
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- Alon Brav & Wei Jiang & Hyunseob Kim, 2012. "The Real Effects of Hedge Fund Activism: Productivity, Risk, and Product Market Competition," Working Papers 12-14, Center for Economic Studies, U.S. Census Bureau.
- Kraft, Holger & Schwartz, Eduardo & Weiss, Farina, 2013. "Growth options and firm valuation," SAFE Working Paper Series 6, Center of Excellence SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
- Maria Cecillia Bustamante, 2011. "Strategic Investment, Industry Concentration and the Cross Section of Returns," FMG Discussion Papers dp681, Financial Markets Group.
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