Industry competition and fundamental analysis

• Autores: Irfan Safdar
• Localización: Journal of accounting literature, ISSN 0737-4607, Vol. 37, Nº. 1, 2016, págs. 36-54
• Idioma: inglés
• Texto completo no disponible (Saber más ...)
• Resumen

  • Economic theory suggests that profits of firms in industries with higher competition are less persistent and more volatile than in industries with lower competition (Stigler, 1963; Mueller, 1977). Extending this reasoning, I hypothesize that accounting-based fundamentals are more effective in predicting performance in industries with lower competition. I find that a measure of fundamentals (Piotroski’s F-score) has greater ability to identify potentially mispriced securities in industries with lower competition. The results are robust to using a variety of competition measures and imply that industry competition is an important consideration in the application of fundamental analysis.