Radical innovations in new product development and their financial performance implications: An event study of US manufacturing firms

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18 Citations (Scopus)

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. 2009.
Original languageEnglish
Pages (from-to)119-128
Number of pages10
JournalOperations Management Research
Volume1
Issue number2
DOIs
Publication statusPublished - 3 Mar 2009

Keywords

  • Event study
  • New product development
  • Radical innovation
  • Resource-based view

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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