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Competition and Operating Volatilities around the World

Published online by Cambridge University Press:  18 December 2018

Tanakorn Makaew  and
Vojislav Maksimovic Open the ORCID record for Vojislav Maksimovic [Opens in a new window]
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Abstract

Numerous papers have shown that developing economies are more volatile. We show that, despite greater aggregate and industry stability, performance and size of individual firms in developed countries are more volatile. In developing countries, market imperfections insulate incumbent firms from competition. Consistent with this, firms in developing countries have higher profit, higher market concentration, and less capital raising. Cross-country differences in operating risk and competition intensity are greater in industries that are dependent on external finance, where we expect higher impacts of capital-market imperfections. We show the inverse relation between aggregate and firm-level volatilities has important implications for international studies of cash holding.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 2 , March 2020 , pp. 517 - 547
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Meghana Ayyagari, Ran Duchin, Jarrad Harford (the editor), Borja Larrain, David McLean, Denis Sosyura, and seminar participants at the European Finance Association Annual Meeting, the U.S. Securities and Exchange Commission, the University of Maryland, the University of Michigan, the University of Virginia’s Darden International Finance Conference, and the Western Finance Association Annual Meeting for helpful comments. All errors are our own. The U.S. Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the Commission or of the author’s colleagues on the staff of the Commission.

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