The role of branding capability for innovative companies: Stock market reactions to new product announcement

Abstract

Purpose

This paper is devoted to describe how innovation should be branded and bridge the gap between branding and innovation, where the role of branding capability is crucial. The study aims to discuss the link between branding and innovation, both theoretically and empirically.

Design/methodology/approach

On the basis of current resource-based theory and dynamic capabilities theory and brand management, the research explores the role of branding capability for innovative companies. For the empirical part, an event study is first used to calculate the abnormal returns from new product announcement. Second, different regression models are analyzed to check the effect of branding capability on the stock market reaction to new product announcements made by those innovative companies.

Findings

The stock market response to new product announcements is related to branding capability, but negatively. The reason could be that the more famous the brand is, the higher expectations the investors would hold with its new products.

Research limitations/implications

The empirical study is based on the computer/electronics industry, and the pooled sample consists of those strong brands in the marketplace, which is not representative for the innovative companies as a whole. Thus, this paper has limited scope to generalize the results.

Practical implications

With the development of wireless communication technologies, the new offerings from innovative companies would not be simply categorized by tangible devices or intangible services. Moreover, the brand alliance strategy in the tablet and handset market, or even PCs and netbook market, is much more complicated than simply choosing partners.

Originality/value

The main contribution of this paper is to extend the prior researches in branded innovation and fill in the gap between innovation and brand.

Citation

Lei, X., Ye, T. and Abimbola, T. (2013), "The role of branding capability for innovative companies: Stock market reactions to new product announcement", Nankai Business Review International, Vol. 4 No. 4, pp. 329-348. https://doi.org/10.1108/NBRI-01-2013-0001