NBER Working Papers by Gerard Hoberg

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Working Papers

July 2011Conglomerate Industry Choice and Product Di fferentiation
with Gordon M. Phillips: w17221
We use text-based computational analysis of business descriptions from 10-Ks to examine in which industries conglomerates are most likely to operate and to understand conglomerate valuations. We find that conglomerates are more likely to operate in industry pairs that are closer together in the product space and in industry pairs that have profitable opportunities "between" them. Conglomerate firms have lower stock market valuations than matched single-segment firms when their products are easier to replicate with single-segment firms. Conglomerate firms have stock market premiums when they have higher product differentiation and produce in more profitable industries. These findings are consistent with successful conglomerate firms having higher product differentiation and lower cost entry...
May 2010Text-Based Network Industries and Endogenous Product Di fferentiation
with Gordon M. Phillips: w15991
We study how firms differ from their competitors using new time-varying measures of product differentiation based on text-based analysis of product descriptions from 50,673 firm 10-K statements filed yearly with the Securities and Exchange Commission. This year-by-year set of product differentiation measures allows us to generate a new set of industries and corresponding new measures of industry competition where firms can have their own distinct set of competitors. Our new sets of industry competitors better explain specific discussion of high competition by management, rivals identified by managers as peer firms and firm characteristics such as profitability and leverage than do existing classifications. We also find evidence that firm R&D and advertising are associated with subsequent d...
August 2008Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis
with Gordon M. Phillips: w14289
We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies. Using novel text-based analysis of firm 10K product descriptions, we find three key results. (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable. (2) Targets earn lower announcement returns when similar alternative target firms exist. (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms. Our findings are consistent with similar me...
Real and Financial Industry Booms and Busts
with Gordon M. Phillips: w14290
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.

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