PRODUCT MARKET COMPETITION PROFITABILITY AND STOCK RETURN: EVIDENCE FROM PAKISTAN

Muhammad Jamil, Department of Business Administration, Iqra University, Islamabad, Pakistan
2021 Pakistan Journal of Social Research  
This study explores the issue of competition in Pakistan economy through industry concentration and examining the link between concentration and stock return both at firm and industry level. For this purpose, it uses all non-financial sectors listed on PSX from 1999 to 2020. The results show that concentrated industries (least competitive), on average, are more profitable and results are robust not only to different empirical strategies but also to different proxies of concentration. A positive
more » ... relation between concentration and stock returns using Fama-MacBeth regressions is observed both at firm and industry level even after controlling for other determinants of returns like: size, B/M, past returns and leverage. Time-series tests of concentration premium on various risk factors: market, SMB, and HML support the positive relation. However, these results diminish in significance when portfolios are value weighted both at firm and industry level. The study has implications for industrial policy as well as for portfolio manager. Keywords: Industry Concentration, Fama-MacBeth regression, Size, B/M, Past returns, Leverage, SMB, HML.
doi:10.52567/pjsr.v3i4.422 fatcat:3e3umfnuuvdzhn5sjgdnqoydxm