Stock returns, industry concentration and firm expenditure decisions

• Published in: Journal of economics and business 2024-09, Vol.131, p.106195, Article 106195
• Main Authors: Kamuriwo, Dzidziso Samuel, Muradoglu, Gulnur, Sivaprasad, Sheeja, Malki, Issam
• Format: Article
• Language: English
• Subjects: Firm Value; Fixed Asset Additions; Industry Concentration; Inventories; Leverage; R&D; SGA
• ISSN: 0148-6195
• DOI: 10.1016/j.jeconbus.2024.106195

We build on agency and strategy literature to investigate and explain whether and how changes in stock returns are related to critical managerial expenditure decisions by firms that are consistent and supportive of the firm’s strategy in different industry concentrations. Unlike previous work, our study considers the impact of an extended list of managerial expenditure decisions in the different industry concentration settings. Our research employs a rich panel of firms listed on the UK London Stock Exchange. We find strong support for our postulations. Key managerial expenditure decisions we considered, leverage, inventories turnover, R&D intensity, SGA and fixed asset additions have a differential impact depending on the industry concentration. Our findings add to our understanding of the effect of managerial agency and its integration to strategy on firm stock returns. Managerial expenditure decisions are both constrained by the competitive context as well as strategic logic – both of which impact stock returns. Our study helps managers to prioritize consequential expenditure decisions in different competitive contexts – a key resource for not only weathering crisis periods but optimizing returns to shareholders. •Investigates managerial expenditure decisions' impact on stock returns across industry concentrations.•Uses panel data of London Stock Exchange firms from 1980-2017.•Employs mixed linear models and dynamic panel methods to address endogeneity.•Leverage, inventories, R&D, SG&A, fixed assets have differential impact on returns based on industry concentration.•Effects accentuated during economic crises.