Industry Concentration, Profitability and Stock Returns

This study use traditional SCP model to investigate the connection among market structure, conduct, and performance. We classified Taiwan listed companies into 85 industries and using Herfindahl-Hirschman index to measure industry concentration. We find that the changes in industrial concentration will affect the profitability. The more concentrated in industries, the higher earnings to assets and profitability to the companies. And at the less concentrated in industries, the firms would have the lower willing to do the R&D works. Finally, firms in more concentrated industries are relative to lower stock returns.