THE EFFECTS OF PRODUCT MARKET COMPETITION ON FUTURE EARNINGS RESPONSE COEFFICIENT AND STOCK PRICE CONCURRENCY

Abstract

By providing the investors with more precise information on the corporation, this information will be reflected on the stock price once the investors proceed to investing. When more specific information on a corporation are available, the stock prices also form based on this information in a way that they would become less-dependent on the information at the market and industry level. Concurrency of stock prices is a criterion that evaluates the extent of dependency of stock prices on specific information and or market/industry level information. On the other hand, efficient disclosure of information results in a better ability for anticipation of future earnings by the investors and resultantly, the information related to the future earnings would be reflected in current stock prices (return). The relationship between current stock return and future earnings is defined as the response coefficient of future earnings which shows the extent of reflection of future earnings information in stock prices. In this regard, through its supervisory role, competition in product market is an element capable of influencing the concurrency of stock prices in addition to reaction coefficient of future earnings. In order to obtain the goals of this study, 100 companies have been selected from companies listed in Tehran's stock exchange during 2005-2016 as the sample of study. The multivariate regression and the combined data models have been used for testing the hypotheses. According to the findings, product market competition has a statistically significant and positive effect on the future earnings response coefficient; however the results have also shown that the amount of competition in product market has no statistically significant effect on concurrency of stock price.