Publication Type

Journal Article

Version

acceptedVersion

Publication Date

9-2018

Abstract

Several firms preannounce their price increases with the expectation that such announcements will be evaluated favorably by investors. However, little is known about the actual effect they have on shareholder value. Accordingly, the authors present the first systematic empirical examination of investors' evaluations of 274 price-increase preannouncements (PIPs). Results show that whereas the average increase in abnormal returns following a PIP is 0.51%, almost 41% of the PIPs result in negative abnormal returns. To explore this heterogeneity, the authors propose a conceptual framework that focuses on three key pieces of information that investors can use when evaluating a PIP: information on the nature (time to implementation and magnitude) of the preannounced price increase, the stated attribution for the preannounced price increase (demand and/or cost based), and information on prior PIP occurrences by the firm and its competitors. Results indicate that PIPs with greater time to implementation, higher own precedence and greater competitive precedence result in lower abnormal returns, while PIPs with higher magnitude and PIPs with an explicit demand attribution result in greater abnormal returns.

Keywords

Abnormal returns, Event study, Marketing-finance interface, Preannouncement, Price increase

Discipline

Finance and Financial Management | Marketing

Research Areas

Marketing

Publication

International Journal of Research in Marketing

Volume

35

Issue

3

First Page

359

Last Page

377

ISSN

0167-8116

Identifier

10.1016/j.ijresmar.2018.06.001

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.ijresmar.2018.06.001

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