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Article: Relative firm profitability and stock return sensitivity to industry-level news

TitleRelative firm profitability and stock return sensitivity to industry-level news
Authors
KeywordsRelative profitability
Industry-level news
Return sensitivity
Industry beta
Issue Date2011
Citation
Accounting Review, 2011, v. 86, n. 4, p. 1321-1347 How to Cite?
AbstractThis study provides theory and evidence to demonstrate how relative firm profitability within an industry affects stock return sensitivity to industry-level news. Extending the Cournot and Bertrand competition models, we predict that (1) the returns of less profitable firms in an industry are more sensitive to industry-level news than those of more profitable firms, and that (2) this inverse relation between relative profitability and return sensitivity is more pronounced when there is positive rather than negative industry news, especially in industries with high (versus low) capital intensity. Using industry returns to proxy for industry-level news, we obtain empirical results consistent with these predictions. We further find that the two fundamental factors that contribute to profitability-cost efficiency and market share-each exhibit an effect similar to that of relative profitability in affecting return sensitivity. Our results remain unchanged after controlling for stock price movements attributable to common risk factors and firm-specific accounting information, and they hold over a range of robustness tests.
Persistent Identifierhttp://hdl.handle.net/10722/233809
ISSN
2015 Impact Factor: 1.953
2015 SCImago Journal Rankings: 4.478

 

DC FieldValueLanguage
dc.contributor.authorHao, Shengquan-
dc.contributor.authorJin, Qinglu-
dc.contributor.authorZhang, Guochang-
dc.date.accessioned2016-09-27T07:21:42Z-
dc.date.available2016-09-27T07:21:42Z-
dc.date.issued2011-
dc.identifier.citationAccounting Review, 2011, v. 86, n. 4, p. 1321-1347-
dc.identifier.issn0001-4826-
dc.identifier.urihttp://hdl.handle.net/10722/233809-
dc.description.abstractThis study provides theory and evidence to demonstrate how relative firm profitability within an industry affects stock return sensitivity to industry-level news. Extending the Cournot and Bertrand competition models, we predict that (1) the returns of less profitable firms in an industry are more sensitive to industry-level news than those of more profitable firms, and that (2) this inverse relation between relative profitability and return sensitivity is more pronounced when there is positive rather than negative industry news, especially in industries with high (versus low) capital intensity. Using industry returns to proxy for industry-level news, we obtain empirical results consistent with these predictions. We further find that the two fundamental factors that contribute to profitability-cost efficiency and market share-each exhibit an effect similar to that of relative profitability in affecting return sensitivity. Our results remain unchanged after controlling for stock price movements attributable to common risk factors and firm-specific accounting information, and they hold over a range of robustness tests.-
dc.languageeng-
dc.relation.ispartofAccounting Review-
dc.subjectRelative profitability-
dc.subjectIndustry-level news-
dc.subjectReturn sensitivity-
dc.subjectIndustry beta-
dc.titleRelative firm profitability and stock return sensitivity to industry-level news-
dc.typeArticle-
dc.description.natureLink_to_subscribed_fulltext-
dc.identifier.doi10.2308/accr-10042-
dc.identifier.scopuseid_2-s2.0-80052433111-
dc.identifier.volume86-
dc.identifier.issue4-
dc.identifier.spage1321-
dc.identifier.epage1347-

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