Product Market Competition, Labor Mobility, and the Cross-Section of Stock Returns

Ahmed, S; Bu, Z; Ye, X
Date: 9 January 2023
Journal
The Review of Asset Pricing Studies
Publisher
Oxford University Press (OUP) / Society for Financial Studies
Publisher DOI
https://doi.org/10.1093/rapstu/raad001
Abstract
This paper explores the impact of product market competition on the positive relation between labor mobility (LM) and future returns. We develop a production-based model and formalize the intuition that low exposure to systematic risk in a concentrated industry limits LM’s amplifying effect on operating leverage. Therefore, the model ...
This paper explores the impact of product market competition on the positive relation between labor mobility (LM) and future returns. We develop a production-based model and formalize the intuition that low exposure to systematic risk in a concentrated industry limits LM’s amplifying effect on operating leverage. Therefore, the model predicts a stronger positive relation between LM and expected returns for firms in competitive industries. Consistent with the model’s prediction, we empirically find that LM predicts returns only among firms in competitive industries. This evidence suggests that the intensity of competition in firms’ product market potentially drives the positive LM-return relation.
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Finance and Accounting

Faculty of Environment, Science and Economy

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© The Author(s) 2023. Published by Oxford University Press on behalf of The Society for Financial Studies. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Except where otherwise noted, this item's licence is described as © The Author(s) 2023. Published by Oxford University Press on behalf of The Society for Financial Studies. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.