Radical innovations in new product development and their financial performance implications: An event study of US manufacturing firms |
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Authors: | Jenny Y Xin Andy C L Yeung T C E Cheng |
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Institution: | (1) Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;(2) Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong;(3) Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong |
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Abstract: | At the dawn of the 21st century, global competition continues to increase at an accelerating rate and radical innovation is
recognized as a potent weapon for firms to achieve sustainable competitive advantages. Academics, practitioners and consultants
share the view that radical innovation is important to the long-term financial success of firms. Nevertheless, empirical studies
on the relationship between radical innovation and firm performance have been dominated by survey research, which provided
little concrete evidence on the financial impact of radical innovation. In this study we traced the financial performance
of publicly traded manufacturing firms in the United States that introduced radical innovations over the period 1986-2000
and examined whether radical innovation could lead to superior financial performance in these firms. We employed the event-study
method, matching each sample firm with a control group of firms in the same industry with similar pre-event performance and
firm size. Our results show that while radical innovation helps firms maintain sales growth and return on sales (ROS), firm
profitability in terms of return on assets (ROA) is not significantly improved. In fact, manufacturers suffer from a decline
in profitability upon the introduction of radical innovations in new product development. |
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Keywords: | Radical innovation New product development Event study Resource-based view |
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