The Value of Quality: Stock Market Returns to Reviewed Quality of New Products
41 Pages Posted: 7 Feb 2007
Date Written: February 2007
Product quality is probably under-valued by firms because there is little consensus about appropriate measures and methods to research quality. We suggest that published ratings of a product's quality are a valid source of quality information with important strategic and financial impact. We 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. Moreover, there are some important asymmetries in the effect. We discuss the research, managerial, investing, and policy implications.
Keywords: Stock returns, Quality, Published reviews, New product
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