The Review of Asset Pricing Studies Vol. 13 No. 3 2023

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

Shamim Ahmed¹; Ziwen Bu²; Xiaoxia Ye³

¹ University of Liverpool Management School, University of Liverpool , United Kingdom · ² Birmingham Business School, University of Birmingham , United Kingdom · ³ University of Exeter Business School, University of Exeter , United Kingdom

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 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.

DOI

10.1093/rapstu/raad001

Volume

13

Issue

3

Pages

440-480

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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