Evidence on competitive advantage and superior stock market performance

Abstract

This article analyzes the value-relevance of industry-based and resource-based competitive advantage in a large sample of firms listed on the Oslo Stock Exchange. We measure competitive advantage by a single variable and perform a new decomposition into its underlying sources. In 1986-2005, the industry-based and the resource-based competitive advantage explain more than 20% of abnormal stock market returns, accumulated over five years. The resource-based advantage is almost four times more important than the industry-based advantage. Differences in both the return and the risk capability of firms’ net assets relative to their industry peers are significant parts of the resource-based advantage, estimated at 60% and 40%, respectively.