Period of sustainable competitive advantage as implied by the market: Comparison between American and European stock markets

Abstract

The objective of this work was to develop an equity valuation model that would incorporate the idea of sustainable competitive advantage; and on the basis of this model, as applied to developed markets, on the examples of the United States and Western Europe, reveal market differences in assessing potential competitiveness of the firms. The main research tasks were as follows: 1. Define the notion of sustainable competitive advantage in the context of corporate valuation. 2. Develop a valuation approach that incorporates the notion of sustainable competitive advantage and on its basis derive a methodology necessary to estimate the market-implied period of sustainable competitive advantage. 3. Conduct a statistical analysis of the difference in the periods of sustainable competitive advantage on American and European stock markets. 4. Draw theoretical and practical implications. In the course of the work it was revealed that there exists a significant difference in the length of period of sustainable competitive advantage as implied by the market between stock markets of the United States and Europe. This difference indicates that the market views companies listed in the US as more competitive in terms of sustainability of their competitive advantages.