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The short-term impact of innovation on the market value

The short-term impact of innovation on the market value

In order to study the relationship between innovation and market value the event study approach may be adopted. The approach accounts for the short-term innovations’ effects. The innovation may be represented by the innovation announcements – publicly available news concerning innovations.
Using innovation announcements to measure innovation effects on companies’ market value is a broadly accepted scientific approach. Chang, Wu and Wong [2010] stated: “standard event-study method was used to examine stock price responses to announcements of innovations” [2010, p. 158] in the context of family owned businesses. Lee, Kim and Kim [2012] used event study approach to examine open technology innovation activity announcements’ effects on Korean firms stock returns. Kajander et al. [2012] analysed sustainability innovation announcements in construction sector in order to measure their impact on companies’ market value. They applied event study approach. Ba et al. [2013] in their study on automakers utilised event study to assess market reaction (thus companies’ market value change) to green vehicle innovation. However similar studies in tourism have a scarce representation of just one research performed by Nicolau and Santa-Maria [2013] who verified innovation announcements effects on hotels’ market value. Still their findings must were tempered by some limitations.
The event-study method is used to measure financial effects of unanticipated events and it allows assessing whether there are abnormal stock price changes associated with them [McWilliams, Siegel 1997]. The calculation procedure was described by Szutowski and Bednarska performing the research on the Polish capital market [2014, p. 210-211]:

“Central to event study approach is calculating abnormal returns, which are assumed to reflect the stock market\’s reaction to new information arrival (McWilliams & Siegel, 1997). The abnormal return is the difference between the actual return and the expected return that would have occurred if the event had not taken place (…).
Expected returns were computed using market model, which assumes a linear relation between the security return and the market return (…).
The daily abnormal returns were aggregated over the event window and cumulative abnormal returns were calculated (…). Lastly, to obtain a single CAR for different innovation types and for the whole sample an average of all event-specific CARs was computed (…).
In order to verify the results’ statistical significance the J test was used (Szyszka, 2003). The test is based on standardised cumulative abnormal returns. In the present study the null hypothesis, that an event doesn’t influence stock prices, was tested (…). Statistical significance was tested for 0,05 and 0,1 α-values”.

Author: Dawid Szutowski



Chang, S., Wu, W., Wong, Y., 2010, Family Control and Stock Market Reactions to Innovation Announcements, British Journal of Management, vol. 21, pp. 152, 170.
Lee, H., Kim, S., Kim, J., 2012, Open technology innovation activity and firm value: evidence from Korean firms, Applied Economics, vol. 44, pp. 3551-3561.
Kajander, J., Sivunen, M., Vimpari, J., Pulkka, L., Junnila, S., 2012, Market value of sustainability business innovations in the construction sector, Building Research and Information, vol. 40, no. 6, pp. 665-678.
Ba, S., Lisic, L., Liu, Q., Stallaert, J., 2013, Stock Market Reaction to Green Vehicle Innovation Sulin, Production and Operations Management, vol. 22, no. 4, pp. 976-990.
Nicolau, J., Santa-Maria, M., 2013, The effect of innovation on hotel market value, International Journal of Hospitality Management, Issue 32, pp. 71-79.
McWilliams, A. & Siegel, D, 1997, Event Studies in Management Research: Theoretical and Empirical Issues, Academy of Management Journal, 40(3), pp. 626-657.
Szyszka, A., 2003, Efektywność giełdy papierów wartościowych w Warszawie na tle rynków dojrzałych, Wydawnictwo Akademii Ekonomicznej w Poznaniu, Poznań
Szutowski, D., Bednarska, A., M., 2014, Short-term effects of innovations on tourism enterprise market value – event study approach, [in:] Dias, F., Oliveira, S., Kosmaczewska, J., Pere, A. (eds.), New trends in tourism research: A Polish perspective, Tourism Research Group of Polytechnic Institute of Leiria, Peniche, pp. 205-217.


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