A Measure of Competition Based on 10‐K Filings

Abstract

In this paper we develop a measure of competition based on management's disclosures in their 10‐K filing and find that firms’ rates of diminishing marginal returns on new and existing investment vary significantly with our measure. We show that these firm‐level disclosures are related to existing industry‐level measures of disclosure (e.g., Herfindahl index), but capture something distinctly new. In particular, we show that the measure has both across‐industry variation and within‐industry variation, and each is related to the firm's future rates of diminishing marginal returns. As such, our measure is a useful complement to existing measures of competition. We present a battery of specification tests designed to explore the boundaries of our measure and how it varies with the definition of industry and the presence of other measures of competition.

Twittering change: The institutional work of domain change in accounting expertise

“…Specifically, we searched for dominant targets (e.g., ''youth''), concepts (e.g., ''professionalism'') and new phenomena (e.g., ''celebrity professional''). Similarly, we analyzed the relative prevalence of key terms of interest, such as ''ethics,'' across each of the New Media platforms, a technique similar to Li, Lundholm, and Minnis (2013) examination of perceived competition in 10-K filings. Finally, we analyzed the proportion of words in each firm's portfolio of New Media content that reflected key topical areas such as ''ethics'', ''virtue'', ''legal'' or ''economics'' using the pre-validated Harvard IV psychosocial dictionary.…”

Tax Rates and Corporate Decision Making

“…Rather, this result is more consistent with the idea that the decision to use the ETR is a result of other factors/biases but not heuristics, at least as described by Hogarth (1981), Kahneman et al (1982) and Pitz and Sachs (1984), among others. 24 We measure a firm's competitive environment using the approaches in Li, Lundholm, and Minnis (2013) and Hoberg and Phillips (2015). Specifically, we classify firms as operating in competitive environments if (i) they operate in an industry with below median concentration measured using the Hoberg and Phillips (2015) text-based industry concentration index, and (ii) the Li et al (2013) index measuring competitive intensity based on the firm's discussion of competition in its 10-K filing is greater than the sample median.…”

Are Inventories Accretive? Lessons from Inventory and Earnings Relationship in the U.S. Capital Goods Sector

“…This perverse incentive may stem from the pressure of the managers to reduce the unit cost of production and improve gross margin especially in the context of cash-constrained firms in highly competitive situations (Kothari 2001, Wang 2002, Kesavan, Gaur et al 2010, Li, Lundholm et al 2013). …”

“…With a fixed numerator, a larger production reduces average fixed cost per unit. A lower average fixed cost may, in turn, increase the gross margin thereby increasing the attractiveness of higher inventory maintenance (Rumyantsev and Netessine 2007, Li, Min et al 2008, Kesavan, Gaur et al 2010, Kesavan and Mani 2013, Li, Lundholm et al 2013). …”