The Differential Effect of New Product Preannouncements in Driving Institutional and Individual Investor Ownership

Firms often use new product preannouncements (NPPAs) to attract investors and inform them about innovative offerings in the pipeline. We observe that the appeal of an NPPA differs for retail and institutional investors. Utilizing prospect theory, we argue that the two types of investors face unequal levels of uncertainty and are dissimilarly loss averse due to varying levels of knowledge and access to resources. This results in varying attitudes towards investment horizon, risk-taking, and preference for information sources. We find investor proclivity toward an NPPA depends on several factors, including the short-term abnormal return, the valence of coverage in media and analyst reports, the firm\u27s risk profile, and the exploration emphasis of the firm. Moreover, we show that higher levels of institutional ownership ultimately contribute to new product success. The results hold implications for strategies that managers can employ to increase investor ownership within the firm to fund innovation

Does Equity-Based Compensation Motivate Executives to Build Strong Brands?

To defeat myopic brand management, we need to understand better what motivates executives to invest in brand building. Drawing from agency theory, we argue that a better alignment of executivesʻ and shareholdersʻ interests can help. Tests using longitudinal compensation data of chief executive officers (CEO) from 123 public firms suggest that decreasing the sensitivity of CEOʻs Equity-Based Compensation (EBC) to the firmʻs stock price and increasing its sensitivity to the firmʻs stock return volatility are associated with higher brand equity. Weak governance somewhat offsets these effects. Moreover, we find that the impact of EBC on brand equity is partially mediated through the firmʻs strategic emphasis. Our research highlights the importance of understanding managerial incentives as drivers of brand equity

Marketing and Bankruptcy Risk: The Role of Marketing Capabilities

Research has demonstrated the role of marketing actions and assets in reducing bankruptcy risk. However, firms with strong marketing assets and robust marketing budgets also fall prey to bankruptcy. Therefore, the sheer magnitude of marketing expenses and mere possession of marketing assets do not fully account for the variation in bankruptcy risk. In this paper, we propose that a firm’s marketing capability, besides its marketing assets, plays an essential role in determining its bankruptcy risk by affecting cash flow. We thereby identify conditions under which a firm’s marketing assets reduce its bankruptcy risk. Using a large longitudinal dataset of U.S. firms, we show that a combination of capabilities and assets is required to reduce bankruptcy risk. We employ machine learning to analyze the effects of marketing capability on bankruptcy. Out-of-sample validation indicates that when marketing capability is included with standard financial predictors, it improves the performance of bankruptcy prediction models

Doing good when times are bad: the impact of CSR on brands during recessions

Purpose: This paper aims to determine what the brand performance consequences of corporate social responsibility (CSR) activities would be during times of recession for well-known brands. Design/methodology/approach: Based on signaling theory, this paper investigates if CSR activities serve to signal higher brand value for consumers via perceptions of better quality and greater differentiation, specifically during recessions. This study incorporates a representative longitudinal sample of known US firms for the analyses, which is accomplished through generalized method of moments estimations. Findings: The findings empirically demonstrate that CSR initiatives during recessions are actually associated with increased perceptions of brand value. More specifically, during recessions, CSR initiatives such as charitable contributions provide a signal to customers of higher brand quality. Research limitations/implications: This study did not control for the costs of doing specific CSR activities that may be less visible to consumers. Practical implications: While individual firms or managers may not be able to prevent recessions from happening, they can limit the negative impact of recessions on their performance by engaging in CSR activities (or refrain from cutting back) during these times. Social implications: Because CSR initiatives during recessions result in more favorable consumer perceptions of the brand, engaging in CSR aligns both social and managerial interests, owing to the economic gains from CSR investments. Originality/value: During times of recession, some critics indicate that CSR may be an unaffordable luxury. On the contrary, this research shows that managers may want to consider CSR activities as a means of increasing the value of their brands, especially during economic recessions

Beyond Warm Glow: The Risk-Mitigating Effect of Corporate Social Responsibility (CSR)

Corporate social responsibility (CSR) positively impacts relationships between firms and customers. Previous research construes this as an outcome of customers’ warm glow that results from supporting firms’ benevolence. The current research demonstrates that beyond warm glow, CSR positively impacts firms’ sales through mitigating their customers’ perceptions of purchase risk. We demonstrate this effect across three conditions in which customers’ perceived risk of purchase is heightened, using both secondary data and two lab experiments. Under conditions of greater purchase risk (i.e., recessions, a service context, and longer-term consumer commitments), CSR positively impacts both sales and customer purchase intentions to a greater extent than in conditions of lower purchase risk. In addition to measuring purchase risk as the mediating process behind these effects, we demonstrate that the effect of CSR on sales is stronger for those CSR activities that signal a stakeholder orientation

A Primer on Moderated Mediation Analysis: Exploring Logistics Involvement in New Product Development

Theorizing and empirically testing moderated mediation hypotheses allows logistics and supply chain management (L&SCM) scholars to extend the boundaries of our current understanding by examining how, when, and why relationships arise between constructs central to our theories. However, while moderated mediation analyses can enrich theory in L&SCM, they are few in number, likely due to the complexities associated with their execution. In this article, we provide a didactic treatment for executing moderated mediation analysis. We do so using primary data regarding logistics involvement in new product development. In the hopes of spurring greater application of moderated mediation in L&SCM, we devise a series of recommendations that guide scholars through the process of conducting such analyses. These recommendations extend prior treatments by explaining how to address challenges associated with devising theories to undergird moderated mediation hypotheses, measuring constructs using multiple indicators, providing guidance for detecting influential cases that can unduly affect results, and integrating what results should be reported

Strategic orientation and firm risk

Entrepreneurial orientation (EO) and market orientation (MO) have received substantial conceptual and empirical attention in the marketing and management literature and both orientations have consistently been linked to stronger financial performance. Yet the way in which market-oriented firms seek to achieve superior rents is substantively different from that of entrepreneurially oriented firms which could lead to differential impacts of EO and MO on firm risk. In this study, the authors employ a text mining technique to assess firms\u27 EO and MO and examine the impact of these two strategic orientations on shareholder risk outcomes. The results show that while EO increases idiosyncratic risk, MO decreases it. However, only EO decreases systematic risk. Overall, the results of this study demonstrate that a firm\u27s decisions regarding strategic orientation should be examined in light of both likely risks and returns in order to make appropriate resource allocation decisions