Product market competition, labor mobility, and the cross-section of stock returns

Shamim Ahmed, Ziwen Bu, Xiaoxia Ye*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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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.
Original languageEnglish
Pages (from-to)440–480
Number of pages41
JournalReview of Asset Pricing Studies
Volume13
Issue number3
Early online date9 Jan 2023
DOIs
Publication statusPublished - Sept 2023

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