The Value of Quality: Stock Market Returns to Published Quality Reviews

Marketing Science, Vol. 26, No. 6, pp. 758-773, November-December 2007

Posted: 18 Apr 2008 Last revised: 29 Apr 2008

See all articles by Gerard J. Tellis

Gerard J. Tellis

University of Southern California - Marshall School of Business, Department of Marketing

Joseph Johnson

University of Miami - Department of Marketing

Date Written: 2008

Abstract

Product quality is probably under-valued by firms because there is little consensus about appropriate measures and methods to research quality. The authors suggest that published ratings of a product's quality are a valid source of quality information with important strategic and financial impact. The authors test this thesis by an event analysis of abnormal returns to stock prices of firms whose new products are evaluated in the Wall Street Journal. Quality has a strong immediate effect on abnormal returns, which is substantially higher than that for other marketing events assessed in prior studies. In dollar terms, these returns translate into an average gain of $500 million for firms that got good reviews and an average loss of $200 million for firms that got bad reviews. Moreover, there are some important asymmetries. Rewards to small firms with good reviews of quality are greater than those to large firms with good reviews. On the other hand, large firms are penalized more by poor reviews of quality than they are rewarded for good reviews. The authors discuss the research, managerial, investing, and policy implications.

Keywords: Stock market returns, Abnormal Returns, Quality, Published reviews, New products

Suggested Citation

Tellis, Gerard J. and Johnson, Joseph, The Value of Quality: Stock Market Returns to Published Quality Reviews (2008). Marketing Science, Vol. 26, No. 6, pp. 758-773, November-December 2007. Available at SSRN: https://ssrn.com/abstract=1121481 or http://dx.doi.org/10.2139/ssrn.1121481

Gerard J. Tellis (Contact Author)

University of Southern California - Marshall School of Business, Department of Marketing ( email )

Hoffman Hall 701
Los Angeles, CA 90089-0443
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HOME PAGE: http://gtellis.net

Joseph Johnson

University of Miami - Department of Marketing ( email )

United States

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