• MKT Research

Competition Links and Stock Returns

Forthcoming in the Review of Financial Studies

By Assaf Eisdorfer, Ken Froot, Gideon Ozik, and Ronnie Sadka

This paper demonstrates that value-relevant information about a firm appearing in regulatory disclosures of other firms is overlooked by investors. Firms highly mentioned in the 10-K competition section of other firms tend to outperform with risk-adjusted returns of up to 9% annually. Outperformance is concentrated in firms whose competition references are made in the context of targeting rather than admiration. Consistent with investor inattention, abnormal returns stem from cross-sector competition mentions as well as firms with low-analyst coverage. Moreover, highly mentioned firms exhibit improved fundamentals in subsequent years, further signifying they are underpriced.

Read a working paper version of this articles here