TY - JOUR

T1 - Does the economic value of new product announcements depend upon preannouncement signals? An empirical test of information asymmetry theories

AU - Mishra, Debi

AU - Далман, Мустафа Дениз

PY - 2023/11

Y1 - 2023/11

N2 - Purpose: Signals, e.g. information released by firms about new products attract the attention and scrutiny of customers, competitors and other stakeholders. In product management, an important area of research focuses on the economic value of such signals. However, extant studies consider valuation effects of product signals independently, and largely ignore how the value of a product signal at launch depends upon prior preannouncements. This study aims to investigate how the dependence of new product development (NPD) signals on past preannouncements affects firms’ security prices. Design/methodology/approach: The study develops a conceptual model that draws upon information asymmetry theories, i.e. signaling and agency theory to hypothesize the effect of firms’ product introduction announcements on security prices given two antecedent preannouncement types (costless and costly signals). Hypotheses are tested by conducting an event study analysis on a sample of 149 matched observations (product introduction announcement preceded by a certain type of preannouncement). Findings: Empirical results confirm the hypothesis that positive valuation effects are observed during product launch that is preceded by initial costless product signaling. In contrast, for ex ante costly product signaling, launch events are not diagnostic enough to affect value. Since organizations’ NPD communications can revise investors’ prior beliefs, they need to be understood in more detail and managed strategically. Research limitations/implications: Valuation metrics can be noisy with a potential to influence information events. In addition, product introduction signals may be deployed more frequently in certain fast-paced industries, e.g. hi-tech. Practical implications: Managers can incorporate signal dependence in product communications. For example, in costless ex ante product signaling situations, initial economic loss may be recovered through launch announcements. Furthermore, when costly signals have been used earlier, firms may economize on promotion costs during launch. Originality/value: Past research has focused on assessing the economic value of new product signals independently, i.e. as discrete events. Absent is an examination of valuation effects due to the dependence of launch signals on prior preannouncements. This paper addresses the dependence gap, and empirical results show that even if firms do not deploy product signals ex ante, value can be created through ex post launch announcements.

AB - Purpose: Signals, e.g. information released by firms about new products attract the attention and scrutiny of customers, competitors and other stakeholders. In product management, an important area of research focuses on the economic value of such signals. However, extant studies consider valuation effects of product signals independently, and largely ignore how the value of a product signal at launch depends upon prior preannouncements. This study aims to investigate how the dependence of new product development (NPD) signals on past preannouncements affects firms’ security prices. Design/methodology/approach: The study develops a conceptual model that draws upon information asymmetry theories, i.e. signaling and agency theory to hypothesize the effect of firms’ product introduction announcements on security prices given two antecedent preannouncement types (costless and costly signals). Hypotheses are tested by conducting an event study analysis on a sample of 149 matched observations (product introduction announcement preceded by a certain type of preannouncement). Findings: Empirical results confirm the hypothesis that positive valuation effects are observed during product launch that is preceded by initial costless product signaling. In contrast, for ex ante costly product signaling, launch events are not diagnostic enough to affect value. Since organizations’ NPD communications can revise investors’ prior beliefs, they need to be understood in more detail and managed strategically. Research limitations/implications: Valuation metrics can be noisy with a potential to influence information events. In addition, product introduction signals may be deployed more frequently in certain fast-paced industries, e.g. hi-tech. Practical implications: Managers can incorporate signal dependence in product communications. For example, in costless ex ante product signaling situations, initial economic loss may be recovered through launch announcements. Furthermore, when costly signals have been used earlier, firms may economize on promotion costs during launch. Originality/value: Past research has focused on assessing the economic value of new product signals independently, i.e. as discrete events. Absent is an examination of valuation effects due to the dependence of launch signals on prior preannouncements. This paper addresses the dependence gap, and empirical results show that even if firms do not deploy product signals ex ante, value can be created through ex post launch announcements.

KW - Information asymmetry

KW - New product

KW - Preannouncements

KW - Product launch

KW - Signaling

UR - https://www.mendeley.com/catalogue/018108d8-ec2b-31cb-8dc0-e91c08958a8b/

U2 - 10.1108/jpbm-09-2022-4161

DO - 10.1108/jpbm-09-2022-4161

M3 - Article

VL - 32

SP - 1157

EP - 1172

JO - Journal of Product and Brand Management

JF - Journal of Product and Brand Management

SN - 1061-0421

IS - 8

ER -