The impact of new product introductions on the market value of firms

Abstract

Innovations in the economic system do not as a rule take place in such a way that first new wants arise spontaneously in consumers and then the productive apparatus swings round through their pressure. We do not deny the process of this nexus. It is, however, the producer who as a rule initiates economic change, and consumers are educated by him if necessary; they are, as it were, taught to want new things, or things which differ in some respect or other from those which they have been in the habit of using. [Joseph A. Schumpeter, 1934, p. 65] Although many mechanisms exist for the evaluation of new products, none have specifically examined the role that financial markets can play in measuring the impact of new products on firms. Using traditional event-study methodology, the present research provides a financial market-based analysis of the impact of new product introductions on the market value of firms. * This research was supported, in part, by the Marketing Science Institute, Cambridge, Massachusetts. Additional support was received from the Dean's Fund for Faculty Research at the Owen Graduate School of Management and the University Research Council, Vanderbilt University. Comments received from participants at seminars at the 1987 Marketing Science Conference in Jouy-en-Josas, France, Carnegie Mellon University, Cornell University, State University of New York at Buffalo, University of Michigan, Northwestern University, University of Rochester, University of Toronto, and Washington University are gratefully acknowledged as is the research assistance of David Livert, Russell Covey, Debra Jeter, Athena Lee, and Guy Lever and secretarial assistance of Cordy Cates and Patricia James. We further wish to thank Merrill Brenner, two anonymous referees, and the editor for helpful comments on a prior version of this article.