Research On The Relationship Between Product Market Competition, Enterprise Investment And Stock Return

Enterprises, product market and capital markets have mutual influence upon each other and should be taken as an whole system. Industry environment, business and market performance is closely related to changes among them. On the one hand, product market environment affects company’s investment decisions and risk level, and even determines its investment policies. On the other hand, investment decisions of listed companies and product market will cause changes of the capital markets. Asset growth anomalies and competitive (monopoly) premium exist on the market, indicating theses three factors are closely related. Thesis on interaction mechanism among them has its research significance.This paper studies the correlation between product market competition, corporate investment and stock returns. The investment behavior, company’s internal and external market conditions and capital market performance are incorporated into a unified analytical framework to explore inner mechanism. The article first study the interaction between product market competition and corporate investment behavior. Secondly the paper analyses the impact of the interaction between the internal and external market on the capital market performance.In this paper, we theoretically analyze the influence of product competition on companies’inefficient investment from the perspective of corporate governance. We also study asset growth anomalies with behavioral finance and risk pricing theories. With the light of real option ideas, we introduce product market risk into the asset-return relations, and integrate the three factors into a unified theoretical framework.Based on the theoretical analysis, the article selected data of manufacturing listed companies from year 2006 to 2014, using statistical analysis and other modeling methods to explore influential mechanism among the three factors. The main conclusions are as follows:Industrial sectors with high market concentration have the tendency of large investment. Product market competition can significantly affect the company’s investment performance. Asset growth effects exist among the manufacturing listed companies. This effect is of more significance in the highly competitive industry. Listed companies with the high industrial concentration has significant monopoly premium, and high investment are the sources of monopoly premium.