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The Effect of Product Introduction Delays on Operating Performance

Listed author(s):
  • Kevin B. Hendricks

    ()

    (School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada)

  • Vinod R. Singhal

    ()

    (College of Management, Georgia Institute of Technology, Atlanta, Georgia 30308)

Registered author(s):

    This paper provides empirical evidence on the effect of product introduction delays on accounting-based measures of operating performance. Based on a diverse set of 450 publicly traded firms that experienced product introduction delays, we find that delays have a statistically significant negative effect on profitability. Depending on the method used to estimate abnormal performance, the median abnormal decline in return on assets (ROA) ranges from 2.70% to 3.44% over a three-year period around the year of the delay announcement. The median decline in sales over assets ranges from 5.92% to 10.99%, and the median decline in return on sales ranges from 1.48% to 3.06%. Cross-sectional regression analysis indicates that the impact of delays on abnormal ROA is more negative for smaller firms, and for firms that are more profitable before the delay. Furthermore, the impact is more negative for firms that operate in industries that are larger and more profitable. We also find a positive association between abnormal ROA and abnormal stock price performance around the product introduction delay announcements.

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    File URL: http://dx.doi.org/10.1287/mnsc.1070.0805
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 54 (2008)
    Issue (Month): 5 (May)
    Pages: 878-892

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    Handle: RePEc:inm:ormnsc:v:54:y:2008:i:5:p:878-892
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    1. V. Krishnan & Karl T. Ulrich, 2001. "Product Development Decisions: A Review of the Literature," Management Science, INFORMS, vol. 47(1), pages 1-21, January.
    2. Scott A. Shane & Karl T. Ulrich, 2004. "50th Anniversary Article: Technological Innovation, Product Development, and Entrepreneurship in Management Science," Management Science, INFORMS, vol. 50(2), pages 133-144, February.
    3. Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July.
    4. Ahmed, Anwer S., 1994. "Accounting earnings and future economic rents : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 17(3), pages 377-400, May.
    5. Morris A. Cohen & Jehoshua Eliasberg & Teck-Hua Ho, 1996. "New Product Development: The Performance and Time-to-Market Tradeoff," Management Science, INFORMS, vol. 42(2), pages 173-186, February.
    6. Jarrell, Gregg & Peltzman, Sam, 1985. "The Impact of Product Recalls on the Wealth of Sellers," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 512-536, June.
    7. Shantanu Bhattacharya & V. Krishnan & Vijay Mahajan, 1998. "Managing New Product Definition in Highly Dynamic Environments," Management Science, INFORMS, vol. 44(11-Part-2), pages 50-64, November.
    8. Kevin B. Hendricks & Vinod R. Singhal, 1997. "Delays in New Product Introductions and the Market Value of the Firm: The Consequences of Being Late to the Market," Management Science, INFORMS, vol. 43(4), pages 422-436, April.
    9. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
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