Management Science
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MANAGEMENT SCIENCE
Vol. 49, No. 2, February 2003, pp. 197-210
DOI: 10.1287/mnsc.49.2.197.12741
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The Financial Rewards of New Product Introductions in the Personal Computer Industry

Barry L. Bayus, Gary Erickson, Robert Jacobson

Kenan-Flagler Business School, University of North Carolina, Chapel Hill, North Carolina 27599
School of Business, Box 353200, University of Washington, Seattle, Washington 98195
School of Business, Box 353200, University of Washington, Seattle, Washington 98195
barry_bayus{at}unc.edu
erick{at}u.washington.edu
yusho{at}u.washington.edu

Based on data from firms in the personal computer industry, we study the effect of new product introductions on three key drivers of firm value: profit rate, profit-rate persistence, and firm size as reflected in asset growth. Consistent with our theoretical development, we find that new product introductions influence profit rate and size; however, we find no effect on profit-rate persistence. Interestingly, we also find that the effect of new product introductions on profit rate stems from a reduction in selling and general administrative expenditure intensity rather than through an increase in gross operating return. Notably, firms decrease their advertising intensity in the wake of a new product introduction. Firm profitability in this industry apparently benefits from new product introductions because new products need less marketing support than older products.

Key Words: new product introductions; firm value; personal computer industry; empirical analysis
History: Received: August 1, 2001;


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