Faculty of Economics and Business Administration Publications Database

Investor reactions to new product development failures: the moderating role of product development stage

Urbig, Diemo
Bürger, Robin
Patzelt, Holger
Volume: 39
Number: 4
Pages: 985 - 1015
Month: May
ISSN-Print: 0149-2063
Link External Source: Online Version
Year: 2013
Keywords: Project failure; Capabilities; Biotechnology; Product development; Event study
Abstract: The authors develop a model of investor reactions to new product development (NPD) failures in high technology firms. They propose that a firm’s financial and managerial capabilities, and its strategic focus on R&D, influence investors’ perceptions of the firm’s market value after NPD failure and that these effects are contingent on the development stage of the failed product. Using data on 148 NPD failures of publicly traded biopharmaceutical firms and an event study methodology the authors find support for their hypotheses. They show that the relationships between a firm’s (a) financial capabilities, (b) managerial capabilities, and (c) strategic focus on R&D, respectively, and the decline of firm market value after NPD failure are more negative for products that fail in late development stages than for products that fail in early development stages. The authors’ results highlight the importance of a conjoint consideration of product-level and organizational-level effects in explaining investor reactions to NPD outcomes.