Time: May 30（Mon.）, 9:00 – 10:30 am (Beijing Time)

Title: Competition Network: Distress Spillovers and Predictable Industry Returns

About the Speaker:

Winston (Wei) Dou is an assistant professor of finance at Wharton and a faculty research fellow at the National Bureau of Economic Research (NBER). Previously, he studied financial economics at MIT. He also received another doctoral degree in statistics from Yale University. His research focus lies at the intersection of finance, macroeconomics, industrial organization, and econometrics. His articles have appeared in Econometrica, Journal of Finance, Review of Financial Studies, Journal of Financial Economics, Management Science, Annals of Statistics, and Journal of American Statistical Association.

Abstract:

We build a competition network of industries — two industries are connected if they share at least one multi-industry firm that competes as a major player in both. Exploiting quasi-experiments induced by the local-natural-disaster occurrences, Lehman failure, and American-Jobs-Creation-Act passage, we find that firms hit by adverse (positive) distress shocks decrease (increase) profit margins, and in response, their“untreated” industry peers, driven by intensified (eased) competition, also cut (raise) profit margins and become more (less) distressed. Further, distress shocks and the resulting changes in competition intensity can propagate to other industries through common major players. Such cross-industry spillovers, with investors’ learning frictions, rationalize industry return predictability through the competition-network links.