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Real and Financial Industry Booms and Busts

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Author Info
Gerard Hoberg
Gordon M. Phillips

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Abstract

We examine how product market competition affects firm cash flows and stock returns in industry booms and busts. In competitive industries, we find that high industry-level stock-market valuation, investment and new financing are followed by sharply lower operating cash flows and abnormal stock returns. We also find that analyst estimates are positively biased and returns comove more when industry valuations are high in competitive industries. In concentrated industries these relations are weak and generally insignificant. Our results suggest that when industry stock-market valuations are high, firms and investors in competitive industries do not fully internalize the negative externality of industry competition on cash flows and stock returns.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14290.

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Date of creation: Aug 2008
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Handle: RePEc:nbr:nberwo:14290

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gerard Hoberg & Gordon M. Phillips, 2008. "Product Market Synergies and Competition in Mergers and Acquisitions," NBER Working Papers 14289, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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