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A Measure of Competition Based on 10-K Filings


  • Accepted by Douglas Skinner. The authors would like to thank an anonymous referee, Ray Ball, Daniel Beneish, Vicki Dickinson, Merle Erickson, Patricia Fairfield, Christian Leuz, Gordon Phillips (discussant), Scott Richardson, Chad Syverson, Jim Whalen, Anne Wyatt, and seminar participants at the University of Arizona, the UBCOW conference, Georgetown University, Shanghai Advanced Institute of Finance, the University of Texas-Dallas, the University of Waterloo, the University of Illinois-Chicago, the Winter Accounting Conference at the University of Utah, Massachusetts Institute of Technology, Santa Clara University, Eastern Illinois University, Duke University, The University of British Columbia, Syracuse University, China European International Business School, UCLA, the University of Mississippi, the London Business School, the London School of Economics, and the Journal of Accounting Research 2012 conference for helpful comments. Minnis gratefully acknowledges support from the ARAMARK Faculty Research Fund and the Neubauer Family Faculty Fellowship. A previous version of a portion of this work was titled “The impact of competitive intensity on the profitability of investments and future stock returns.”

  • The competition data is available for download:


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.