Industry competition and fundamental analysis
Journal of Accounting Literature
ISSN: 0737-4607
Article publication date: 27 October 2016
Issue publication date: 31 December 2016
Abstract
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.
Keywords
Citation
Safdar, I. (2016), "Industry competition and fundamental analysis", Journal of Accounting Literature, Vol. 37 No. 1, pp. 36-54. https://doi.org/10.1016/j.acclit.2016.09.001
Publisher
:Emerald Publishing Limited
Copyright © 2016, Emerald Publishing Limited