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Industry Concentration, Firm Efficiency and Average Stock Returns: Evidence from Australia

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  • Thu A. T. Pham

    (University of Economics Ho Chi Minh City)

Abstract

This study examines the relationship between industry concentration and level of firm efficiency and their effect on cross-sectional stock returns in Australian market. Our analysis shows that industry concentration and firm efficiency have independent effects on stock returns. By forming 25 double-sorted portfolios based on industry concentration and firm efficiency, INEFFICIENT firms in concentrated industry earn highest stock returns, while EFFICIENT firms in concentrated industry earn lowest stock returns. Also we find that industry concentration appears to be associated with market share while efficiency has a greater effect on firm earnings. In our cross-sectional regressions, industry concentration shows a positive relationship with average stock returns while firm efficiency shows a negative association with average stock returns. The concentration and efficiency effects are persistent throughout the sample period and is robust after controlling for size and book-to-market.

Suggested Citation

  • Thu A. T. Pham, 2018. "Industry Concentration, Firm Efficiency and Average Stock Returns: Evidence from Australia," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(3), pages 221-247, September.
    • Handle: RePEc:kap:apfinm:v:25:y:2018:i:3:d:10.1007_s10690-018-9246-5
    DOI: 10.1007/s10690-018-9246-5
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    More about this item

    Keywords

    Asset pricing; Industry concentration; Firm efficiency; Stochastic frontier approach;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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