A Study on the Sources, the Economic Consequence of Competitive Advantage of China Listed Companies

Competitive advantage has always been a hot topic for entrepreneurs and scholars. This article analyses the sources and the economic consequences of competitive advantage of companies listed in Shanghai and Shenzhen Stock Exchange between 2007 and 2012. The results showed that: (1) Industrial organization model, resources-based view, dynamic capability theory can explain the sources of competitive advantage for China listed companies. (2) Industrial organization model has the strongest explanatory power, dynamic capabilities theory next to it, and resource-based view explain the least. (3) In detail, the most influential variables are R&D expenses, overall cost leadership, financial resources, differentiation, and human resources. (4) Competitive advantage not only significantly affected the t period excess stock returns, but also can be used to predict the t+1 period excess stock returns. Our findings provide some empirical evidence for Chinese firm on how to improve competitive advantage and some advice for investors on how to select stock.