Technologically new products and value creation : an event study and the moderating effect of knowledge characteristics

Abstract

The development of technologically new products (TNPs), in which advanced technology is incorporated in new product development, is crucial for firms to gain competitive advantage. However, extant literature is limited in providing understanding of the relationship between TNPs and their financial implications. Based on a sample of 475 major innovation awards for TNPs between 1987 and 2006 in the U.S., we examine the financial impact of TNPs. We further investigate how the knowledge characteristics of a firm that develops TNPs moderate the relationship between TNPs and financial performance. We examine three types of firm knowledge characteristics, which are firm's absorptive capacity, knowledge impact and knowledge breadth. Our research is based on objective data from COMPUSTAT and the National Bureau of Economic Research (NBER) patent database. We find support for an overall positive impact of TNPs and reveal that the impact of TNPs on financial performance is stronger when firms have higher absorptive capacity and more impactful knowledge. However, knowledge breadth negatively moderates the financial impact of TNPs. Our research supports a knowledge-based view of new product development - firms with higher absorptive capacity, more impactful knowledge but narrower (instead of broader) knowledge base obtain stronger financial returns from products they develop.