The Financial Rewards of New Product Introductions

29 Pages Posted: 27 Apr 2001

See all articles by Barry L. Bayus

Barry L. Bayus

University of North Carolina Kenan-Flagler Business School

Gary Erickson

University of Washington - Michael G. Foster School of Business

Robert Jacobson

Diogenes Consulting; University of Washington - Michael G. Foster School of Business

Date Written: April 2001

Abstract

There is little question that new product innovation is a cornerstone to firm success. Particularly in technologically dynamic markets like personal computers, new products are central to long-term financial performance. However, exactly how new product introductions influence firm value is less clear. Based on data from firms in the personal computer industry, we study the effect of new product introductions on three key drivers of firm value: profit rate, profit rate persistence, and firm size as reflected in asset growth. We find that new product introductions influence profit rate and size, but not persistence. Interestingly, the effect of new product introductions on profit rate appears to stem from a reduction in selling and general administrative expenditure intensity rather than through an increase in gross operating return. Firm profitability apparently benefits from new product introduction because new products need less marketing support than older products.

Keywords: Profit rate, persistence

JEL Classification: L2, M3

Suggested Citation

Bayus, Barry and Erickson, Gary M. and Jacobson, Robert, The Financial Rewards of New Product Introductions (April 2001). Available at SSRN: https://ssrn.com/abstract=267896 or http://dx.doi.org/10.2139/ssrn.267896

Barry Bayus (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599
United States
919-962-3210 (Phone)

Gary M. Erickson

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Robert Jacobson

Diogenes Consulting ( email )

2002 1st Avenue North
Seattle, WA 98109
United States

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543-4780 (Phone)

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