Research On The Impact Of Product Market Competition On Stock Returns

Since Hou and Robinson(2006)discussed the relationship between industry concentration and average stock earnings,the impact of product market competition on stock earnings has attracted widespread attention.Fixed assets investment directly affects the earnings of enterprises'stocks,because it has large capital consumption,long term,and irreversible,which has a great impact on the future cash flow and enterprise value of enterprises.Product market competition produces the influence to the enterprise manager's decision,and the fierce competition will restrain the excessive investment in fixed assets Fixed assets investment is an important factor related to product market competition and stock returns,as a bridge to reveal the relationship between them.At the same time,numerous research results at home and abroad show that stock volatility has increased significantly in recent years.Product market competition is associated with idiosyncratic volatility and stock returns by influencing corporate financial activities.In views of this,based on the discussion of how the product market competition affects the stock return,this paper analyzes the simple mediation effect path,moderating effect path and multiple mediation effect path of product market competition affecting stock returns from the perspective of firm fixed asset investment and stock idiosyncratic volatility.Through these efforts,we want to explore the process and mechanism of product market competition affecting stock returns,and try to uncover the "black box" of the process by which product market competition affects stock returmsFrom the perspective of enterprise fixed assets investment and stock idiosyncratic volatility,we can describe the relationship between product market and stock market more clearly.It is helpful to deepen the understanding of the influencing factors of stock returns.This paper explores the action mechanism and transmission path of the influence of product market competition on stock returns,which can provide new ideas for research in this field,provide references for further research,and expande the application field of multiple intermediary effects.In addition,the research conclusion can help national administrative authorities to formulate policies related to industrial structure adjustment,help enterprise managers to adjust product structure,and help investors to allocate portfolio proportion to avoid investment risks and obtain additional excess returns.Therefore,this study has theoretical and practical significance.We use China,s A-share listed companies from 1998 to 2016 as a sample,and comprehensively measure product market competition from the perspective of inter-industry competition and intra-industry competition.We use Herfindahl-Hirschman index(HHI)to measure industry concentration.lt can characterize entire industries.Industries with high concentration tend to have relatively high barriers to entry and there is a monopoly phenomenon.We use Lerner index to measure market power.It can characterize the pricing power of the company in the industry.Enterprises with large market power have relatively large independent pricing rights and face relatively low levels of competition.To ensure that no significant variables are omitted,this article selects control variables based on the five-factor model proposed by Fama and French in 2015.They are the size of the company,the book value ratio,the level of investment,the return on equity,and the market portfolio.On this basis,we add the leverage ratio to reflect the company's financial risk.The research method of this paper is using literature research,inductive reasoning and logical deduction to propose research assumptions,estimating the linear and nonlinear relationship between product market competition and stock returns by multiple regression analysis.We test whether the fixed asset investment and idiosyncrasy volatility played an intermediary role in the process of the impact of product market competition on stock returns by using the method of mediating effect analysis.We examine the moderating effect of stock idiosyncrasy volatility in the process of product market competition on stock returms by using the method of moderating effect analysis.Using the structural equation method,we examine the multiple mediating effects of product market competition affecting stock retums.lt comprehensively describes the effect of enterprise fixed asset investment and idiosyncrasy volatility on the relationship,and systematically reveals the process and mechanism under multiple intermediary paths.This thesis includes 7 chapters,and the specific contents are as follows:Chapter 1,introduction.This chapter introduces the background,proposal,purpose and significance of the research,elaborates the logic,methods and content arrangement of the research,and finally discusses the main contributions and shortcomings.Chapter 2,literature review.This chapter reviews the literature on the relationship among product market competition,firm fixed investment,idiosyncratic volatility and stock returms at home and abroad.Based on summary of the previous research results,we find out the shortcomings of the existing research and explore new research angles,and then establish the research theme of this article.Chapter 3,the impact of product market competition on stock returns.We use variable grouping and multiple regression method to analysis the influence of product market competition on stock returns.They have not ouly linear relations,but also non-linear relations.Chapter 4,research on the impact of product market competition on stock returus,based on the mediating effect of fixed assets investment.This chapter analyzes the relationship between product market and capital market from the perspective of fixed assets investment,use the research paradigm of "product market competition——enterprise fixed assets investment——stock returns,and test method for mediating effect.The results show that the relationship between fierce competition in the product market and the company's stock returns are "inverted U-shape",it means both the competition and the monopoly will increase corporate stock returns.In addition,it is proved that the fixed assets investment of the enterprise is the intermediary variable,product market eompetition affects the investment strategy of fixed assets,and then influences the stock returmsChapter 5,the research on the impact of product market competition on stock returns,based on the mediating effect and moderating effects of idiosyncratic volatility.We analyze the effect of product market competition on stock returns from the perspective of idiosyncratic volatility,and take the method of mediating effect and moderating effect.Obtain the following conclusion:both the fierce competition and the monopoly in the product market will reduce stock returns;industry concentration and market forces are positively relate to the volatility of stock characteristics;product market competition affects stock returns by influencing idiosyncratic volatility,but the role of idiosyncratic volatility adjustment the strength and direction of the affect is not obvious.In order to further probe into the relationship of product market competition and stock returns,a sub-region test was done in the sixth chapter.Based on the previous two chapters,this paper puts the enterprise investment and idiosyncratic volatility into a research framework at the same time,and comprehensively studies the relationship between"product market competition-enterprise fixed assets investment-characteristic volatility-stock returns".This chapter first elaborates the necessity and advantages of multiple intermediary effects analysis,and then designs the test model and analysis process of multiple mediating effects.Finally,this chapter uses SEM analysis the multiple effects of product market competition on stock returns.The results show that the product market competition will affect the stock returns through the fixed assets investment and the idiosyncratic volatility of the enterprise respectively.However,the chain intermediary of product market competition?firm fixed assets investment?idiosyncratic volatility?stock returns is not tenable.There are parallel multiple intermediary relationships among product market competition,firm fixed assets investment,idiosyncratic volatility and stock returts.Chapter 7,the research conclusions and puts forward policy recommendations.This chapter summarizes the main conclusions of the previous chapters,and puts forward corresponding policy recommendations on this basis.The main conclusions of this thesis include the following points.Conclusion 1:there is a linear positive correlation and a non-linear inverted U-shaped relationship between stock returns and product market competition in both inter-industry and intra-industry markets.After controlling the leverage ratio,company size,book-to-market ratio,investment level,return on equity,and risk factors,the conclusion remains unchanged.On the one hand,moderate monopoly can make enterprises obtain more monopoly income,but excessive monopoly in industries lacking competition leads to the decline of stock returns.On the other hand,competition will stimulate enterprises to innovate and obtain higher stock returns,but excessive competition will lead to unprofitable businesses in the industry.Conclusion 2:the more intense the competition in the product market,the less the enterprise's investment in fixed assets.The product market competition affects the stock return through the inflluence enterprise fixed asset investment;the enterprise fixed asset investment is the intermediate variable between the product market competition and the stock return.Conclusion 3:intense product market competition can reduce the idiosyncratic volatility.Idiosyncratic volatility is the medium variable of product market competition and stock returns.Product market competition affects stock returns by affecting idiosyncratic volatility.At the same time,idiosyncratic volatility is not the adjustment variables of the impact of product market competition on stock returns.Idiosyncratic volatility cannot affect the strength and direction of the relationship between product market competition and stock returns.Conclusion 4:no matter between industries or within the industry,the product market competition will affect the stock returns through enterprise fixed asset investment and diosyncrasy volatility respectively.There are significant differences between two specific mediating effect paths.However,the chain intermediary of product market competition?firm fixed assets investment?idiosyncratic volatility?stock returns is not tenable.There are parallel multiple intermediary relationships among product market competition,firm fixed assets investment,idiosyncratic volatility and stock returns.There are several possible innovations in this paper.First,this paper proposes to measure the impact of product market competition on stock returms in multi-dimension by taking inter-industry and intra-industry market competition as explanatory variables respectively.The five factors proposed by Fama and French in 2015 were used as control variables to avoid the risk of missing important pricing variables,which is more comprehensive and accurate than previous studies.Second,this paper Puts forward the idea of discussing the intermediary effect and regulating effect of product market competition on stock return from the perspective of fixed asset investment and characteristic fluctuation,and analyzes the process and mechanism of effect of product market competition on stock return.At present,domestic and foreign literatures only focus on the pairwise relationship between product market competition,stock returns,fixed asset investment and idiosyncrasy volatility.The research of this paper is not only progress in methods,but also the results obtained more in-depth.Third,we consider the multiple intermediary effects of the two intermediary variables of fixed asset investment and idiosyncrasy volatility together.It makes up for the possibility that the parameter estimation error is low due to the omission of other intermediary variables when only one intermediary variable is considered.Through the comparison of fixed asset investment and characteristic fluctuation,the paper further reveals the "black box,that the product market competition affects the stock return process.At the same time,it also expands the application field of multiple intermediary effect analysis methods.Fourth,the intermediary effect model is improved,and an intermediary effect test method is proposed when the relationship between independent variables(product market competition)and dependent variables(stock returns)is "inverted U type".It provides a new solution for the researcher to analyze the nonlinear intermediary effect relationship.