Roll, Richard and de Bodt, Eric and Eckbo, B. Espen (2021) Competition Shocks, rival reactions and return comovement. Social Science Working Paper, 1463. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20220415-223243515
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Abstract
We estimate changes in within-industry stock-return comovement caused by the reaction of rival firms to significant tariff cuts. In theory, rivals react by either increasing or decreasing product differentiation. Increased differentiation lowers cash flow correlation and return comovement, while reduced differentiation increases comovement. Large-sample tests show that tariff cuts in manufacturing industries increase comovement and more so for within-industry 'followers' than 'leaders'. The notion that this comovement-increase reflects efficiency-enhancing rival reactions is also supported by evidence of increased cost-efficiency measures. One channel for this efficiency-increase is M&A activity among industry followers.
| Item Type: | Report or Paper (Working Paper) | ||||
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| Group: | Social Science Working Papers | ||||
| Subject Keywords: | Return comovement, inframarginal rent, competition shock, rival reaction, product differentiation, scale economies, industry follower | ||||
| Series Name: | Social Science Working Paper | ||||
| Issue or Number: | 1463 | ||||
| Classification Code: | GEL classification: G34, G38, L10, L25 | ||||
| DOI: | 10.7907/1m0m-4291 | ||||
| Record Number: | CaltechAUTHORS:20220415-223243515 | ||||
| Persistent URL: | https://resolver.caltech.edu/CaltechAUTHORS:20220415-223243515 | ||||
| Usage Policy: | No commercial reproduction, distribution, display or performance rights in this work are provided. | ||||
| ID Code: | 114353 | ||||
| Collection: | CaltechAUTHORS | ||||
| Deposited By: | Kapauhi Stibbard | ||||
| Deposited On: | 15 Apr 2022 23:07 | ||||
| Last Modified: | 15 Apr 2022 23:07 |
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