Leaders, Followers, and Risk Dynamics in Industry Equilibrium
We study the distinct impacts of own and rival actions on risk and return when firms strategically compete in the product market. Contrary to simple intuition, a competitor’s options to adjust capacity reduce own-firm risk. For example, if a rival possesses a growth option, an increase in industry d...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2014-04, Vol.49 (2), p.321-349 |
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| container_end_page | 349 |
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| container_issue | 2 |
| container_start_page | 321 |
| container_title | Journal of financial and quantitative analysis |
| container_volume | 49 |
| creator | Carlson, Murray Dockner, Engelbert J. Fisher, Adlai Giammarino, Ron |
| description | We study the distinct impacts of own and rival actions on risk and return when firms strategically compete in the product market. Contrary to simple intuition, a competitor’s options to adjust capacity reduce own-firm risk. For example, if a rival possesses a growth option, an increase in industry demand directly enhances profits but also encourages value-reducing competitor expansion. The rival option thus acts as a natural hedge. Within the industry, we obtain endogenous differences in expected returns. In a leader-follower equilibrium, own-firm and competitor risks and required returns move together through contractions and oppositely during expansions, providing testable new predictions. |
| doi_str_mv | 10.1017/S0022109014000337 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0022-1090 |
| ispartof | Journal of financial and quantitative analysis, 2014-04, Vol.49 (2), p.321-349 |
| issn | 0022-1090 1756-6916 |
| language | eng |
| recordid | cdi_proquest_journals_2787200914 |
| source | EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; Cambridge University Press Journals Complete |
| subjects | Endogenous Equilibrium Intuition Profits Risk reduction |
| title | Leaders, Followers, and Risk Dynamics in Industry Equilibrium |
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