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Is sustainable competitive advantage an advantage for stock investors?

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  • Liu, Yi
  • Mantecon, Tomas

Abstract

Investing in stocks of companies with sustainable competitive advantage, the moat, does not earn higher raw returns. These companies tend to be larger, financially stronger, and have lower book-to-market ratios (growth stocks). After controlling for size, book-to-market ratio and other risk factors, sustainable competitive advantages is a positive factor affecting cross-section of stock returns. Firms with sustainable competitive advantage also seem to be shielded from mean reversion of higher profitability better than non-wide moat firms.

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  • Liu, Yi & Mantecon, Tomas, 2017. "Is sustainable competitive advantage an advantage for stock investors?," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 299-314.
    • Handle: RePEc:eee:quaeco:v:63:y:2017:i:c:p:299-314
    DOI: 10.1016/j.qref.2016.04.007
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    Cited by:

    1. Williams Kwasi Peprah & Mensah Morris Ayaa, 2022. "The Convergence of Financial Decision, Business Strategy Through Organisational Competitiveness to Sustainable Competitive Advantage: A Conceptual Analysis," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(2), pages 1-87, February.
    2. An-Pin Wei & Chi-Lu Peng & Hao-Chen Huang & Shang-Pao Yeh, 2020. "Effects of Corporate Social Responsibility on Firm Performance: Does Customer Satisfaction Matter?," Sustainability, MDPI, vol. 12(18), pages 1-18, September.
    3. Suhendra . & Etty Murwaningsari, 2019. "The Effect of Accounting Information and Tax Information on Trading Value Moderated by Competitive Strategy," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 6(2), pages 43-50.

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    More about this item

    Keywords

    Investment; Economic moat; Sustainable competitive advantage; Asset pricing; Cross-section of stock returns;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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