Robert Jacobson

Trading Off Between Value Creation and Value Appropriation: The Financial Implications of Shifts in Strategic Emphasis

Firms allocate their limited resources between two fundamental processes of creating value (i.e., innovating, producing, and delivering products to the market) and appropriating value (i.e., extracting profits in the marketplace). Although both value creation and value appropriation are required for achieving sustained competitive advantage, a firm has significant latitude in deciding the extent to which it emphasizes one over the other. What effect does strategic emphasis (i.e., emphasis on value creation versus value appropriation) have on firms financial performance? The authors address this issue by examining the effect that shifts in strategic emphasis have on stock return. They find that the stock market reacts favorably when a firm increases its emphasis on value appropriation relative to value creation. This effect, however, is moderated by firm and industry characteristics, in particular, financial performance, the past level of strategic emphasis of the firm, and the technological environment in which the firm operates. These results do not negate the importance of value creation capabilities, but rather highlight the importance of isolating mechanisms that enable the firm to appropriate some of the value it has created.

THE VALUE RELEVANCE OF BRAND ATTITUDE IN HIGH TECHNOLOGY MARKETS

The authors assess the extent to which brand attitude, a key component of brand equity, has value relevance—that is, helps predict future earnings and thus firm value—in high-technology markets. Using data for firms in the computer industries, the authors find that changes in brand attitude are associated contemporaneously with stock return and lead accounting financial performance. The study also provides insights into the drivers of brand attitude. The authors find that both product attributes and peripheral cues shape brand attitudes in high-technology markets.

The Financial Rewards of New Product Introductions in the Personal Computer Industry

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.

THE ROLE OF RISK IN EXPLAINING DIFFERENCES IN PROFITABILITY

This study examined the role of risk in explaining cross-sectional differences in the profitability of business units. Applying suggestions of financial theory, we disaggregated risk into two components-systematic and unsystematic-that are thought to have different effects on return. Drawing on the PIMS data base, we found each component of risk to have a substantial, significant, and different impact on return on investment (ROI). The research and strategy implications of the roles of risk are discussed. The two key factors in any investment decision are return and risk. Under the assumption that investors are risk-averse and seek to minimize the risk for any level of expected return, intuition suggests that additional return must compensate investors for assuming additional risk. Scholars in finance and other disciplines have devoted a great deal of work to refining and formalizing this intuition. This same logic applies in the context of strategy, as Wensley (1981), Bettis and Mahajan (1985), and others have observed. A strategic investment decision should explicitly consider risk-decision makers should demand a higher return for an investment involving high risk. Yet, in typical practice, strategic investment decisions are adjusted for risk ad hoc, if at all. Firms typically set relatively high hurdle rates in making go/no go investment decisions and apply these rates to all investments, regardless of their riskiness (Hayes & Gavin, 1982). Further, historical evaluation of existing strategies, whether it concerns evaluating present management or attempting to place values on businesses to be divested or acquired, focuses almost exclusively on return and rarely attempts to quantify risk. These failures to account for risk adequately will unquestionably lead to inappropriate decisions. All else being equal, if firms judge business performance only in terms of return, regardless of risk, they will place more resources than warranted in risky strategies, forgo profitable opportunities, and apply misguided performance evaluations. Further, if researchers do not control for risk in studies assessing the effects of strategic factors on We would like to thank the Strategic Planning Institute for providing access to the data used in this study.

Are Physicians Easy Marks? Quantifying the Effects of Detailing and Sampling on New Prescriptions

Much public attention and considerable controversy surround pharmaceutical marketing practices and their impact on physicians. However, views on the matter have largely been shaped by anecdotal evidence or results from analyses with insufficient controls. Making use of a dynamic fixed-effects distributed lag regression model, we empirically assess the role that two central components of pharmaceutical marketing practices (namely, detailing and sampling) have on physician prescribing behavior. Key differentiating features of our model include its ability to (i) capture persistence in the prescribing process and decompose it into own-growth and competitive-stealing effects, (ii) estimate an unrestricted decay structure of the promotional effects over time, and (iii) control for physician-specific effects that, if not taken into account, induce biased coefficient estimates of detailing and sampling effects. Based on pooled time series cross-sectional data involving three drugs, 24 monthly observations, and 74,075 individual physicians (more than 2 million observations in total), we find that detailing and free drug samples have positive and statistically significant effects on the number of new prescriptions issued by a physician. However, we find that the magnitudes of the effects are modest.

Myopic management behavior with efficient, but imperfect, financial markets: A comparison of information asymmetries in the U.S. and Japan☆

Abstract In order to gain insights into possible cross-national differences in asymmetric information between managers and investors, we empirically assess differences in timing between the U.S. and the Japanese stock markets in impounding accounting information. Our findings indicating that the Japanese stock market incorporates information earlier than does the U.S. stock market are consistent with the hypothesis that Japanese investors, who tend to have close ties to the businesses they invest in, are better informed than their U.S. counterparts. We suggest, building on Steins (1989) work on market signaling/jamming, that larger information asymmetries in the U.S. may be creating incentives for a short-run management style detrimental to long-term competitiveness.

When Bad Things Happen to the Endorsers of Good Products

We investigate how a firms financial performance (as measured by stock returns) is influenced when celebrity endorsers become involved in undesirable events, i.e., events that have a deleterious effect on the spokespersons. We find that the stock market reaction to these events is negatively related to spokesperson blameworthiness. The lower (higher) the culpability, the higher (lower) the stock return. Interestingly, it is only those firms associated with spokespersons having high culpability that tend to experience losses in stock market value. In contrast, we find that events rated at or below the mean level of blameworthiness are associated with positive stock market returns.

Phasic pupil dilation response to noxious stimulation in normal volunteers: Relationship to brain evoked potentials and pain report

Pupillary response to noxious stimulation was investigated in men (n = 11) and women (n = 9). Subjects experienced repeated trials of noxious electrical fingertip stimulation at four intensities, ranging from faint to barely tolerable pain. Measures included pupil dilation response (PDR), pain report (PR), and brain evoked potentials (EPs). The PDR began at 0.33 s and peaked at 1.25 s after the stimulus. Multivariate mixed-effects analyses revealed that (a) the PDR increased significantly in peak amplitude as stimulus intensity increased, (b) EP peaks at 150 and 250 ms differed significantly in both amplitude and latency across stimulus intensity, and (c) PR increased significantly with increasing stimulus intensity. Men demonstrated a significantly greater EP peak amplitude and peak latency at 150 ms than did women. With sex and stimulus intensity effects partialled out, the EP peak latency at 150 ms significantly predicted PR, and EP peak amplitude at 150 ms significantly predicted the PDR peak amplitude.

The Financial Markets and Customer Satisfaction: Reexamining Possible Financial Market Mispricing of Customer Satisfaction

We investigate the association between information contained in the American Customer Satisfaction Index (ACSI) metric and future stock market performance. Some past research has provided results suggesting that the financial markets misprice customer satisfaction; i.e., firms advantaged in customer satisfaction are posited to earn positive future-period abnormal stock returns. We reexamine this relationship and find that statistically significant evidence of financial market mispricing of customer satisfaction is limited to firms in the computer and Internet sector. The results suggest that the mispricing anomaly reported in past research appears not to stem from a systemic failure of the financial markets to impound the financial implications of customer satisfaction into current stock price, but rather from abnormal returns achieved by a small group of satisfaction leaders in the computer and Internet sector over the period of study. Analyses based on unconditional risk covariates and analyses using conditional risk covariates estimated from short-window, high-frequency data support this finding.

The Reciprocal Impact of Brand Leveraging: Feedback Effects from Brand Extension Evaluation to Brand Evalution

While the benefits that brand leveraging brings to the brand extensionmarket have been widely discussed and documented, the reciprocal impact ofthis action on brand evaluation has received less attention and is thesubject of greater speculation. Empirical studies have failed to uncover areciprocal effect from extension evaluation to brand evaluation. As aresult, a consensus view has emerged suggesting that established brand namesare sufficiently strong so as to make them resilient or even immune toextension-induced attitude change. Our results challenge this view in thatwe find that: i) the reciprocal effect of brand extension evaluations onbrand evaluations exists, ii) the phenomenon occurs in the presence ofdiffering attribute cues about the extension (i.e., descriptions of brandrelated or distinctive product attributes) and for consumers with differinglevels of need for cognition.