TY - JOUR
T1 - The impact of industry concentration on the market's ability to anticipate future earnings
T2 - International evidence
AU - Haw, In Mu
AU - HU, Bingbing
AU - Lee, Jay Junghun
AU - Wu, Woody
N1 - Publisher Copyright:
© Emerald Group Publishing Limited.
Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 2016
Y1 - 2016
N2 - Purpose - The existing literature has established the importance of industry concentration in explaining firm performance and information environments. However, little is known about whether and how industry concentration affects investors' ability to anticipate future earnings. This paper aims to investigate this query by identifying and testing two channels, product market power and intra-industry information transfer, through which industry concentration affects the informativeness of stock returns about future earnings. Design/methodology/approach - The paper measures the informativeness of stock returns about future earnings by the future earnings response coefficient (FERC)). This study estimates the FERC using a firm-level sample from 38 economies. Findings - The authors find that industry concentration significantly enhances investors' ability to predict future earnings. Further tests show that both product market power and intra-industry information transfer contribute to explaining the positive association between industry concentration and the FERC, with the former playing a more salient role. Finally, the authors show that a country's effective competition law attenuates the positive impact of industry concentration on the FERC by weakening the economic impact of the two underlying channels. Originality/value - This study contributes to the growing literature on the price-leading-earnings relation, industry concentration and international corporate governance.
AB - Purpose - The existing literature has established the importance of industry concentration in explaining firm performance and information environments. However, little is known about whether and how industry concentration affects investors' ability to anticipate future earnings. This paper aims to investigate this query by identifying and testing two channels, product market power and intra-industry information transfer, through which industry concentration affects the informativeness of stock returns about future earnings. Design/methodology/approach - The paper measures the informativeness of stock returns about future earnings by the future earnings response coefficient (FERC)). This study estimates the FERC using a firm-level sample from 38 economies. Findings - The authors find that industry concentration significantly enhances investors' ability to predict future earnings. Further tests show that both product market power and intra-industry information transfer contribute to explaining the positive association between industry concentration and the FERC, with the former playing a more salient role. Finally, the authors show that a country's effective competition law attenuates the positive impact of industry concentration on the FERC by weakening the economic impact of the two underlying channels. Originality/value - This study contributes to the growing literature on the price-leading-earnings relation, industry concentration and international corporate governance.
KW - Competition laws
KW - Future earnings response coefficient (FERC)
KW - Industry concentration
KW - Intra-industry information transfer
KW - Product market power
UR - http://www.scopus.com/inward/record.url?scp=84994301096&partnerID=8YFLogxK
U2 - 10.1108/IJAIM-04-2016-0034
DO - 10.1108/IJAIM-04-2016-0034
M3 - Journal article
AN - SCOPUS:84994301096
SN - 1834-7649
VL - 24
SP - 443
EP - 475
JO - International Journal of Accounting and Information Management
JF - International Journal of Accounting and Information Management
IS - 4
ER -