Does Competition Make Businesses Resilient?
DOI:
https://doi.org/10.33423/jabe.v27i1.7496Keywords:
business, economics, industry competition, resiliency, exogenous shock, product market-structure, Herfindahl indexAbstract
This study investigates the relation between industry-level competition and the stock market's response to an exogenous shock. Specifically, we utilize the stock market's reaction to the terrorist attacks on September 11, 2001, which caused a significant market decline. Our findings reveal that firms operating in highly concentrated industries (lower competition), as measured by the Herfindahl index, experienced more pronounced negative returns following the attacks. Therefore, firms in less competitive fields may not be prepared for the unexpected. These results support the notion that competition bolsters business resilience to shocks and underscore the importance for investors to consider product market structures when evaluating firm performance.
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