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Delays in New Product Introductions and the Market Value of the Firm: The Consequences of Being Late to the Market

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Author Info

  • Kevin B. Hendricks

    (School of Business, College of William and Mary, Williamsburg, Virginia 23187)

  • Vinod R. Singhal

    (School of Management, Georgia Institute of Technology, Atlanta, Georgia 30332)

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    Abstract

    This paper empirically estimates the impact of not meeting promised new product introduction dates on the market value of the firm. We estimate the average "abnormal" change in the market value for a sample of 101 firms around the date when information about delaying the introduction of new products is publicly announced. On average, delay announcements decrease the market value of the firm by 5.25%. The average dollar change in the market value in 1991 dollars is $-119.3 million. The evidence suggests that there are significant penalties for not introducing new products on time. To provide further insight, regression analyses are used to identify factors that influence the direction and magnitude of the change in market value. We find that the competitiveness of the industry in which the firm operates, the size of the firm, and the firm's degree of diversification are statistically significant predictors for the change in the market value of firms that announce delays in the introduction of new products.

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    File URL: http://dx.doi.org/10.1287/mnsc.43.4.422
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 43 (1997)
    Issue (Month): 4 (April)
    Pages: 422-436

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    Handle: RePEc:inm:ormnsc:v:43:y:1997:i:4:p:422-436

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    Related research

    Keywords: product delays; event studies; stock market response;

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    Cited by:
    1. Wang, Chi-Feng & Chen, Li-Yu & Chang, Shao-Chi, 2011. "International diversification and the market value of new product introduction," Journal of International Management, Elsevier, vol. 17(4), pages 333-347.
    2. Ramasesh, Ranga & Tirupati, Devanath & Vaitsos, Constantin A., 2010. "Modeling process-switching decisions under product life cycle uncertainty," International Journal of Production Economics, Elsevier, vol. 126(2), pages 236-246, August.
    3. McGuire, Stephen J. & Dilts, David M., 2008. "The financial impact of standard stringency: An event study of successive generations of the ISO 9000 standard," International Journal of Production Economics, Elsevier, vol. 113(1), pages 3-22, May.
    4. Berchicci, L. & King, A.A. & Tucci, C.L., 2008. "The Strategic Determinants of Tardy Entry: Is Timeliness Next to Godliness?," ERIM Report Series Research in Management ERS-2008-070-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    5. Druehl, Cheryl T. & Schmidt, Glen M. & Souza, Gilvan C., 2009. "The optimal pace of product updates," European Journal of Operational Research, Elsevier, vol. 192(2), pages 621-633, January.
    6. Perrone, G. & Roma, P. & Lo Nigro, G., 2010. "Designing multi-attribute auctions for engineering services procurement in new product development in the automotive context," International Journal of Production Economics, Elsevier, vol. 124(1), pages 20-31, March.
    7. Kai-Lung Hui & Qiu-Hong Wang, 2005. "Delayed Product Introduction," Industrial Organization 0503011, EconWPA.

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