The Wealth Effect of New Product Introductions on Industry Rivals

Chen, Sheng‐Syan; Ho, Kwok Ki; Ik, Kueh Hwa

doi:10.1086/429650

Cited by 57 publications

(54 citation statements)

References 75 publications

(135 reference statements)

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“…Chen et al (2005) find that rivals' product announcements have a bigger negative impact on a firm's financial market value when product newness is limited. This is consistent with our finding for the CSD industry where most product innovations are modest or incremental.…”

Section: Conclusion and Discussionmentioning

confidence: 85%

“…Most notably, our paper constitutes one of the few studies that highlight the impact of rival marketing moves on a firm's financial market value (for product announcements, see Chen et al 2005). Theoretically, product innovation and new advertising can work as either defensive or offensive strategic tools (Bayus and Putsis 1999, Kadiyali et al 1999, Shaffer and Zhang 2002.…”

Section: Introductionmentioning

confidence: 99%

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Masters of War: Rivals' Product Innovation and New Advertising in Mature Product Markets

2009

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W e investigate the impact of rivals' product innovation and new advertising on a firm's financial market value in mature product markets. Our test bed is the carbonated soft drink market between 1999 and 2003, a period characterized by a near duopoly between Coca-Cola and Pespi. Empirically, we focus on new product announcements as a proxy of product innovation and on filed trademarks as a measure of new advertising. We find that rival product announcements decrease a firm's financial market value, and that rival filed trademarks increase it. Finally, we find that the effect of new advertising is channeled through market size dynamics, while that of product innovation operates through market share dynamics. Results are robust across different estimation techniques (event study, Tobin's q) and model specifications.

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Section: Conclusion and Discussionmentioning

confidence: 85%

Section: Introductionmentioning

confidence: 99%

Masters of War: Rivals' Product Innovation and New Advertising in Mature Product Markets

2009

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“…Bayus et al (2003) study the impact of new product introductions in the personal computer industry on profit rate, profit rate persistence and asset growth. Robertson et al (1995) and Chen et al (2005b) study the impact of new product announcements on competing firms. Chen et al (2005a) examine the effect of product introduction delays on industry rivals.…”

Section: Prior Literaturementioning

confidence: 99%

Valuing R&D Projects in a Portfolio: Evidence from the Pharmaceutical Industry

2007

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Understanding the value of a product development project is central to a firm's choice of project portfolio. The value of a project to a firm depends not only on its properties but also on the other projects being developed by the firm. This is due to interactions with the other projects that address the same consumer need and require the same development resources. In this study, we empirically investigate the structure and significance of these portfolio-level project interactions. Using a self-developed pharmaceutical industry data set, we conduct an event study around the failure of phase III clinical trials and their effect on the market valuation of the firm. The study exploits the natural experiment of a product development failure to give us a measure of the value of a drug development project to a firm. We then explain the variance in the value of projects based on interactions with other projects in the firm's portfolio. We find that the presence of other projects targeting the same market and a build-up of projects that require the same development resources reduce the value of a development project. In addition to providing evidence on the significance and structure of these portfoliolevel project interactions, the empirical model estimated in this paper also provides a data-driven approach to valuing projects that may be relevant to licensing transactions. AbstractUnderstanding the value of a product development project is central to a firm's choice of project portfolio. The value of a project to a firm depends not only on the project's properties but also on the other projects being developed by the firm. This is due to interactions with other projects in the portfolio that address the same consumer need and with other projects that require the same development resources. In this study, we empirically investigate the structure and significance of these portfolio-level project interactions. Using a pharmaceutical industry dataset that we develop, we conduct an event study around the failure of phase III clinical trials, which exploits the natural experiment of a product development failure to give us a measure of the value of a drug development project to a firm. We then explain the variance in the value of projects based on interactions with other projects in the firm's portfolio. We find that the presence of other projects targeting the same market and a build-up of projects that require the same development resources reduce the value of a development project. In addition to providing evidence on the significance and structure of these portfolio-level project interactions, the empirical model estimated in this paper also provides a data-driven approach to valuing projects that may be the focus of licensing transactions.

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“…The existence of intra-industry competitive effects, whereby one firm's value-increasing actions decrease the value of its rivals are well documented, and cover a wide range of firm actions such as new product introductions (Chen, Ho and Ik, 2005), management forecasts (Kim, Lacina, and Park, 2008), mergers (Becher, Mulherin and Walkling, 2012), and stock repurchases (Massa, Rehman and Vermaelen, 2007) to name a few. 3 This literature implies that when a financial firm votes on an industry rival, it 2 Consider, for example, the March 31, 2005 re-election of the notoriously combative Lehman CEO Dick Fuld to the company's board.…”

Section: Most Often Because Of Lack Of Sufficient Independence Of Insmentioning

confidence: 99%

Frenemies: How Do Financial Firms Vote on Their Own Kind?

Keswani

Stolin²,

Tran

2017

Management Science

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Management Science, forthcoming Permanent repository link: AbstractThe financial sector is unique in being largely self-governed: the majority of financial firms' shares are held by other financial institutions. This raises the possibility that monitoring of financial firms is especially undermined by conflicts of interest due to personal and professional links between these firms and their shareholders. To investigate this possibility, we scrutinize the aspect of the financial sector's self-governance that is directly observable: mutual fund companies' voting of their peers' stock. We find that considerations specific to investee firms' membership in the same industry as their investors do indeed impact voting. This impact is in the direction of supporting the investee's management. We show that the own-industry effect reduces director efficacy and lowers firm value as a result. We extend our analysis to other financial companies and show that they also tend to vote more favorably when it comes to their peers. Our results suggest that peer support is a corrupting factor in the financial sector's governance.

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The Wealth Effect of New Product Introductions on Industry Rivals

Cited by 57 publications

References 75 publications

Masters of War: Rivals' Product Innovation and New Advertising in Mature Product Markets

Masters of War: Rivals' Product Innovation and New Advertising in Mature Product Markets

Valuing R&D Projects in a Portfolio: Evidence from the Pharmaceutical Industry

Frenemies: How Do Financial Firms Vote on Their Own Kind?

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