The Immediate Impact of New Product Introductions on Stock Price: The Role of Firm Resources and Siz...

<jats:p>New product development and introduction is an ongoing important issue to facilitate a firm's success. To demonstrate the financial impact of new product introductions and the supporting role of firm resources and organizational structure, the authors collected 409 new product announcements from 1990 to 1998 and used event methodology and regression models in this research. Building on resources and capabilities perspectives, the present study argues that firm resources with emphases on research and development (R&amp;D) are imperative to materialize new product concepts. However, the research revealed that R&amp;D resources have dual effects on immediate shareholder value (i.e., abnormal stock returns). On one hand, when the firm commits only lower to moderate levels of R&amp;D, investors would have perceived such R&amp;D as expenditures reducing the firm's profit margin and thereby negatively evaluate R&amp;D resources. Nevertheless, when the firm has dedicated its resources to R&amp;D significant enough to signal investors its potential benefits can outweigh its costs, it generates positive shareholder value. Further, the study found that investors honor positive marketing resources that are critical to promote and launch new products to customers. Apart from resources perspectives, according to the organizational structure literature, firm size reflects the layers of bureaucracy within an organization. The research found a negative effect on shareholder value, indicating that investors evaluate more optimistically smaller firms that are likely to be more innovative and entrepreneurial resulted in more breakthrough products. In conclusion, this study provides value to practitioners in understanding the impact of firm size and, more importantly, to what extent they dedicate their resources in R&amp;D and marketing to generate different performance outcomes.</jats:p>