The Contingency Factors on the Relationship Between New Product Preannouncements and Firm Value: An Abstract

Abstract

The need to measure the financial return toward marketing actions and demonstrate the role of marketing as a critical function in companies has been a top priority for marketing scholars and practitioners. Accordingly, it has been demonstrated that various marketing actions, such as new products, advertising expenditures, and product promotions (e.g., Joshi and Hanssens 2010; Pauwels et al. 2004) positively affect stock market reactions as they accelerate the amount of a firm’s expected future cash flows. One marketing action that has attracted considerable attention in the literature is the new product development (NPD) and innovation efforts due to their vital yet costly and risky nature (Barczak et al. 2009). In this study, we examine the impact of new product preannouncements (NPPAs), a relatively under-researched component of the NPD strategy, on firm value (e.g., Lee et al. 2015; Sorescu et al. 2007). Our purpose is to contribute to the existing knowledge by further examining the contingency factors that influence the relationship between NPPAs and a firm’s stock returns in response to those preannouncements.

This study specifically examines whether the relationship between NPPA specificity and firm stock returns is enhanced if the new product is highly innovative; the brand has high customer satisfaction score and advertising expenditures and competes in a highly competitive segment. Our research context is the US automotive industry for the period of 2001–2010, and our dataset includes NPPAs for 187 car models and 10,954 model-month pairs. Consistent with prior research, we used the event study methodology to estimate cumulative abnormal returns (CARs) in efforts to examine the short-term predictive power of the stock markets. To test our hypotheses, we used a hierarchical multiple regression analysis.

Our findings demonstrate that despite being an important factor in alleviating information asymmetry between firms and investors, preannouncement specificity solely is not a significant determinant of stock market abnormal returns to NPPAs. The results also reveal that a variety of product-, brand-, and environment-related factors can significantly influence the impact of preannouncement specificity on firm value. Specifically, while a higher level of product innovativeness, brand customer satisfaction index, and advertising expenditures enhance the impact of preannouncement specificity, a highly competitive environment deters the impact of specificity on stock market returns.