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How Does Strategic Competition Affect Firm Values?

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  • Sheng-Syan Chen
  • Kim Wai Ho
  • Kueh Hwa Ik
  • Cheng-few Lee
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    Abstract

    We examine the role of strategic interaction in explaining the valuation effect of new product announcements and employ Sundaram, John, and John’s (1996) competitive strategy measure to operationalize the nature of a firm’s competitive interaction. Using a sample of new product introductions between 1991 and 1995, we find that the market values introductions announced by firms in strategic substitutes competition more favorably than those announced by firms in strategic complements competition. These results hold after we control for other variables that could explain the announcement effect. We also find that industry rivals of those announcing firms that compete in strategic substitutes and experience a positive announcement effect generally suffer a small, but significant wealth loss. The evidence supports the notion that the nature of competitive interaction in an industry is important in assessing the effect of corporate product strategies on shareholder value.

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    Bibliographic Info

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 31 (2002)
    Issue (Month): 2 (Summer)
    Pages:

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    Handle: RePEc:fma:fmanag:lee02

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    Cited by:
    1. Liang Li, 2012. "How Much Are Resource Projects Worth? A Capital Market Perspective," Economics Discussion / Working Papers 12-13, The University of Western Australia, Department of Economics.
    2. Mark Bagnoli & Stanley Levine & Susan G. Watts, 2005. "Analyst estimation revision clusters and corporate events, Part I," Annals of Finance, Springer, vol. 1(3), pages 245-265, 08.
    3. Chien-Wei Chen & Min-Hsien Chiang & Chi-Lin Yang, 2014. "New product preannouncements, advertising investments, and stock returns," Marketing Letters, Springer, vol. 25(2), pages 207-218, June.
    4. Foo-Nin Ho & Allan D. Shocker & Yewmun Yip, 2010. "Economic impact of marketing alliances on shareholders' wealth," Managerial Finance, Emerald Group Publishing, vol. 36(7), pages 534-546, July.

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