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Competitive advantage and firm, industry, and country effects: An asset pricing perspective

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  • Kohls, Tobias
  • Mager, Ferdinand
  • Regele, Tobias

Abstract

We examine the relation between competitive advantage, its underlying drivers, and abnormal stock returns. We use a comprehensive global dataset covering 22 years. To measure competitive advantage, we use the cash flow return-on-investment (CFROI®) metric, which allows for consistent comparisons across industries, countries, and periods. We find a positive relation between competitive advantage and stock returns after controlling for common risk factors. Industry-based advantages are more important than resource-based advantages in explaining abnormal stock returns in developed markets. This result contrasts with most studies in strategic management, which mostly base their analysis on accounting-based profitability metrics. Country effects play a minor role.

Suggested Citation

  • Kohls, Tobias & Mager, Ferdinand & Regele, Tobias, 2023. "Competitive advantage and firm, industry, and country effects: An asset pricing perspective," Journal of Economics and Business, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:jebusi:v:127:y:2023:i:c:s0148619523000309
    DOI: 10.1016/j.jeconbus.2023.106137
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    More about this item

    Keywords

    Competitive advantage; Firm effects; Industry effects; Country effects; Cross section of returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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