New Product Entry and Capital Market’s Reaction to Industrial Competitors: Diversified versus Focused
Date Issued
2007
Date
2007
Author(s)
Lin, Syuan-Cheng
DOI
en-US
Abstract
Diversification and innovation are relative to company values. In the past decades, globalization leads more firms to become diversified, while most papers assert that diversification erode firm values. To re-consider this inconsistency, this study takes new product announcement as the proxy of innovation to examine the wealth benefits or drawbacks coming from diversification in terms of competition.
New product introductions generate market expansion effect and market substitute effect. This study captures capital market responses to new product announcements for announcing firms and their rivals. The finding is that new product announcements bring the increases of stock prices for announcing firms and the decreases of those for industrial competitors. This proves that market substitute effect is stronger.
Furthermore, diversified announcers experience less increases than focused ones, while diversified rivals face less decreases than focused ones. This evidence states that coinsurance effect and internal capital market, created by diversification, provide better capabilities of resisting tough competition or/and recession. That is, diversification is valuable for firms in a difficult situation.
Subjects
多角化
共保效果
內部資本市場
市場競爭
新產品
創新
diversification
focused
multiple segment
coinsurance
internal capital market
competition
new product
patent
innovation
SDGs
Type
thesis
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