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Organizational Form and the Economic Impact of Corporate New Product Strategies


  • Sheng-Syan Chen

    1. The author is from the Department of Finance, College of Management, National Taiwan University, Taiwan. He wishes to thank Shao-Chi Chang, Dosoung Choi, Kim Wai Ho, Frank C. Jen, Cheng-few Lee, Andrew W. Stark (editor), and especially an anonymous referee, as well as seminar participants at the 2004 FMA Annual Meeting for helpful comments and suggestions. He would also like to thank Kim Wai Ho and Kueh Hwa Ik for providing some of the data used in this study. Hung-Sheng Chen, Chia Wei Huang and Wenchun Lin provided very capable research assistance.
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  • The author also gratefully acknowledges funding from the National Science Council of Taiwan (NSC93-2416-H002-055).

* Address for correspondence: Sheng-Syan Chen, Department of Finance, College of Management, National Taiwan University, No. 85, Sec. 4, Roosevelt Rd., Taipei, Taiwan.


Abstract:  This paper examines the role of organizational form in explaining the economic impact of corporate new product strategies. I find that the wealth effects associated with the announcements of new product introductions are more favorable for introducing firms with focused activities than for those with diversified activities. The results hold even after controlling for other factors suggested in the literature that could affect the value of new product introductions. The findings in this study suggest that the efficient investment hypothesis dominates the internal capital markets hypothesis in terms of the net economic impact of new product introductions on the introducing firms.