TY  - JOUR
AU  - Hoberg,Gerard
AU  - Phillips,Gordon M.
TI  - Real and Financial Industry Booms and Busts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14290
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14290
L1  - http://www.nber.org/papers/w14290.pdf
N1  - Author contact info:
Gerard Hoberg
Robert H. Smith School of Business
University of Maryland
4423 Van Munching Hall
College Park, MD 20742
Tel: 301/405-9685
Fax: 301/405-0359
E-Mail: ghoberg@rhsmith.umd.edu

Gordon M. Phillips
Marshall School of Business, Hoffman Hall
University of Southern California
3670  Trousdale Parkway
Bridge Hall 308
Los Angeles, CA 90089-0804
Tel: 213/740-0038
E-Mail: Gordon.Phillips@marshall.usc.edu
AB  - 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.
ER  -