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Firm power in product market and stock returns

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  • Jory, Surendranath
  • Ngo, Thanh

Abstract

We compare the buy-and-hold abnormal returns (BHARs) among the deciles portfolios of firms based on their product market power. We document that the value-weighted portfolios (equally-weighted portfolios) of firms with the strongest product market power generate one-year BHARs ranging from 13.96% (8.85%) to 16.90% (10.63%) higher than the portfolios of the weakest firms. The abnormal returns persist even when we control for industry concentration level (as suggested by Hou and Robinson (2006)), common firm characteristics and alternative industry classifications. The higher returns accrued to the portfolios of firms with the strongest product market power can be attributed to the higher future standardized earnings surprises generated by these firms and their lower idiosyncratic volatility.

Suggested Citation

  • Jory, Surendranath & Ngo, Thanh, 2017. "Firm power in product market and stock returns," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 182-193.
    • Handle: RePEc:eee:quaeco:v:65:y:2017:i:c:p:182-193
    DOI: 10.1016/j.qref.2016.09.008
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    3. Musaab Mousa & Saeed Nosratabadi & Judit Sagi & Amir Mosavi, 2021. "The Effect of Marketing Investment on Firm Value and Systematic Risk," Papers 2104.14301, arXiv.org.

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