Innovation for Economically Disadvantaged Customers and Shareholder Value: Exploring the Role of Marketing, Corporate Governance, and Corporate Citizenship: An Abstract

Abstract

Each year, thousands of firms introduce new products to target economically disadvantaged customers (EDC). Extant research reveals significant heterogeneity in the stock market response to such introduction of new products. The current research addresses the following questions: (a) Do EDC innovations, on average, increase shareholder value?, (b) Do some companies get rewarded more for their EDC innovations?, (c) If so, do certain factors such as high market orientation, strong marketing capability, large pay gap between chief executive officer (CEO) and top management team (TMT) members, high corporate social performance (CSP), and greater number of new product introductions (NPIs) impact shareholder value? This study proposes that the above mentioned four factors are likely to moderate the impact of EDC innovations on shareholder value. The authors conducted an event study of company announcements on EDC innovations for 241 publicly listed U.S. firms during the period 2007–2015. The study is expected to show that marketing factors such as market orientation and marketing capability, and corporate governance factor influence how EDC innovations affect shareholder value. The market model (Brown and Warner 1985) reveals a mean cumulative abnormal return (CAR) of 0.30% for the sample firms. The result demonstrated that EDC innovations have positive and significant relationship with shareholder value of firms. The authors also used an alternative measures of cumulative average abnormal return (CAAR) for robustness checks. This result is consistent with the original empirical analysis. However, we did not find support for moderation effect of CSP on the relationship between EDC innovations and shareholder value of firms. Using both signaling theory and resource-based view (RBV), the paper posits that firms with high market orientation, strong marketing capability, and new product introductions which are radical (radical vs. incremental) are likely to accrue greater stock market returns from EDC innovations. However, the large pay gap between CEO and TMT members will attenuate this relationship. The paper concludes with implications of this research and suggests future research agenda.