Capital Market Returns to New Product Development Success: Informational Effects on Product Market Advertising

Journal of Marketing Research 2019, Vol. 56(1) 37-56

50 Pages Posted: 30 Jan 2020 Last revised: 4 Feb 2020

See all articles by Kyung Park

Kyung Park

Purdue University

Pradeep K. Chintagunta

University of Chicago

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management; Korea University Business School (KUBS)

Date Written: January 7, 2019

Abstract

The authors seek to answer the question: if the capital market reacts with abnormal stock returns to new product development success events, do these returns influence subsequent marketing decisions? Drawing on informational market feedback and managerial learning theories, the authors posit that when firms are uncertain about how responsive the product market will be to their marketing activities, signals received from the capital market help them update their beliefs about the responsiveness. After decomposing the abnormal returns at the new drug approval event into components that can and cannot be predicted by the firm (i.e., predicted and unpredicted abnormal returns), the authors find that the post-approval advertising budget is larger when unpredicted abnormal approval returns are higher. Further, this tendency is more pronounced for detailing spending than for direct-to-consumer (DTC) advertising. Consistent with these higher budgets, the authors find that post-launch advertising effectiveness is better as unpredicted abnormal approval returns are higher, particularly for detailing (versus DTC). Overall, this study suggests that information flows from the capital market’s initial perceptions at new product introduction play an important role in subsequent marketing decisions in the product market.

Keywords: unpredicted abnormal event returns; unpredicted consumer demand; advertising budget; advertising effectiveness; persistence modeling

JEL Classification: G10; G14; G31; G37

Suggested Citation

Park, Kyung and Chintagunta, Pradeep K. and Suk, Inho, Capital Market Returns to New Product Development Success: Informational Effects on Product Market Advertising (January 7, 2019). Journal of Marketing Research 2019, Vol. 56(1) 37-56, Available at SSRN: https://ssrn.com/abstract=3515287

Kyung Park

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

Inho Suk (Contact Author)

State University of New York (SUNY) at Buffalo - School of Management ( email )

342 Jacobs Management Center
Buffalo, NY 14260-4000
United States
716-645-3215 (Phone)

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

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