Real and Financial Industry Booms and Busts

By Gerard Hoberg, Gordon M. Phillips. Journal of Finance, 2010

345 citations recorded by the source corpus.

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.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/f340654e7209b0041f0a205e66df0552f6cdc7df

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Citations in the corpus

Product market competition, R&D investment, and stock returns (2016, methodology): “(HHI) in Hoberg and Phillips (2010). R&D intensity is defined as R&D and Nasdaq stocks are divided into three groups using the breakpoints for alues of HHI in year t 1. Independently, firms with non-missing R&D are le 40%, and top 30% of the ranked values of RD/ME in year t 1. Monthly o June of year”
Common ownership and competition in product markets (2021, neutral): “Subsequent tables replicate important analyses from the paper but using industries defined by four-digit SIC codes or the 300 fixed-classification industries from Hoberg and Phillips (2016) (H&P), respectively.”
Investor Horizons and Corporate Policies (2013, positive): “For our third proxy, we follow Hoberg and Phillips (2010): We use the same specification as Pástor and Veronesi (2003), but we run regressions by year and industry like Rhodes-Kropf et al.”
Product market competition and conditional conservatism (2014, neutral): “The Hoberg and Phillips (2010) measure covers all three-digit SIC industries with the exception of firms from the financial and utilities industries.”
Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis (2010, neutral): “We thus control for the following standard measures of industry competition and merger similarity based on SIC codes: We use the two-step method described by Hoberg and Phillips (2010) to compute salesbased Herfindahl ratios for each three-digit SIC code.”
Behavioral and Rational Explanations of Stock Price Performance around SEOs: Evidence from a Decomposition of Market-to-Book Ratios (2010, methodology): “See, for example, Hoberg and Phillips (2010), who use the method to measure industry-wide valuation relative to historical values, and Campello and Graham (2007), who use a similar method to estimate fundamental Q using publicly observed accounting data.”
Corporate governance and earnings management in concentrated markets (2020, background): “Second, the lower degree of competition for sources of finance in concentrated markets lessens companies’ need to provide more information in order to reduce their cost of capital (Diamond and Verrecchia, 1991; Hoberg and Phillips, 2010).”
Private and Public Merger Waves (2012, neutral): “17 To calculate the rm specic misvaluation measure (MISV), we use model (3) from Rhodes-Kropf, Robinson and Viswanathan (2005), as updated by Hoberg and Phillips (2010). First, we regress log market value of equity on log book value of equity, net income, an indicator for negative net income and l”