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New product innovations, information signalling and industry competition

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  • Aigbe Akhigbe

Abstract

This paper examines the impact of new product innovations on the market values of industry rivals. The evidence indicates that, on average, firms introducing new products experience a significantly positive valuation effect at announcement, while portfolios of industry rivals experience a significant negative valuation effect. This result is consistent with the hypothesis that signals of adverse changes in the competitive position of rivals dominate expected benefits from an innovation spillover. Crosssectional analysis of the announcement period returns reveals that the competitive effects are more pronounced in industries with less concentration and high leverage. Additionally, we find that industry rivals perform as well as the new product firms during the three years following the innovations. We conclude that over a longer period, rival firms are able to respond to the competitive disadvantage of the new product by some alternative innovation or an imitation.

Suggested Citation

  • Aigbe Akhigbe, 2002. "New product innovations, information signalling and industry competition," Applied Financial Economics, Taylor & Francis Journals, vol. 12(5), pages 371-378.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:5:p:371-378
    DOI: 10.1080/09603100010007715
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    Cited by:

    1. Ashish Sood & Gerard J. Tellis, 2009. "Do Innovations Really Pay Off? Total Stock Market Returns to Innovation," Marketing Science, INFORMS, vol. 28(3), pages 442-456, 05-06.
    2. Scott Besley & Ninon Kohers & Tanja Steigner, 2007. "Private placements of common equity and the industry rival response," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 559-568.
    3. M. Mark Walker & Chi-Sheng Hsu, 2007. "Strategic objectives, industry structure and the long-term stock price performance of acquiring and rival firms," Applied Financial Economics, Taylor & Francis Journals, vol. 17(15), pages 1233-1244.
    4. Sofka, Wolfgang & Schmidt, Tobias, 2004. "I Like The Way You Move: An Empirical Investigation into the Mechanisms Behind First Mover and Follower Strategies," ZEW Discussion Papers 04-87, ZEW - Leibniz Centre for European Economic Research.
    5. Francois Brochet & Kalin Kolev & Alina Lerman, 2018. "Information transfer and conference calls," Review of Accounting Studies, Springer, vol. 23(3), pages 907-957, September.
    6. Chen, Sheng-Syan & Lin, Chih-Yen & Tsai, Yun-Ching, 2018. "New product strategies and firm performance: CEO optimism," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 37-53.

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