Article ID: | iaor20033057 |
Country: | United States |
Volume: | 49 |
Issue: | 2 |
Start Page Number: | 197 |
End Page Number: | 210 |
Publication Date: | Feb 2003 |
Journal: | Management Science |
Authors: | Bayus Barry L., Erickson Gary, Jacobson Robert |
Keywords: | financial |
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. Consistent with our theoretical development, we find that new product introductions influence profit rate and size; however, we find no effect on profit-rate persistence. Interestingly, we also find that the effect of new product introductions on profit rate stems from a reduction in selling and general administrative expenditure intensity rather than through an increase in gross operating return. Notably, firms decrease their advertising intensity in the wake of a new product introduction. Firm profitability in this industry apparently benefits from new product introductions because new products need less marketing support than older products.