Innovation strategies and stock price informativeness

Arbeitspapier

This paper models the interactions among technological innovation, product market competition and information leakage via the stock market. There are two firms who compete in a product market and have an opportunity to invest in a risky technology either early on as a leader or later once stock prices reveal the value of the technology. Information leakage thus introduces an option of waiting, which enhances production efficiency. A potential leader may nevertheless be discouraged from investing upfront, when anticipating its competitor to invest later in response to good news. I show that an increase in product market competition increases the option value of waiting but has an ambiguous effect on information production. It may thus be the case that intense competition leads to more leakage such that no firm would invest, especially so in a smaller market. Given a moderate level of competition, price informativeness may also improve investment outcome when investment profitability and the market size are relatively large. The model predicts that, under these conditions, the investment of a follower firm is more sensitive to share price movements.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 491

Classification and Topics

• Classification: Wirtschaft ; Information and Market Efficiency; Event Studies; Insider Trading ; Capital Budgeting; Fixed Investment and Inventory Studies; Capacity ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: Price efficiency ; Information leakage ; Innovation ; Feedback

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ding, Haina
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2015

Further information

• DOI: doi:10.5282/ubm/epub.22798
• Handle: http://hdl.handle.net/10419/110401
• URN: urn:nbn:de:bvb:19-epub-22798-6
• Last update: 10.03.2025, 11:42 AM CET