Using stock prices to predict market events: Evidence on sales takeoff and long-term firm survival


Marketing Science

juillet-août 2008, vol. 27, n°4, pp.717-729

Départements : Marketing

The sales takeoff is the critical event in the market history of really new products. Currently, managers have limited ability to anticipate takeoff, and there is tremendous uncertainty at takeoff about which firms will succeed in these promising new markets. This paper evaluates whether stock prices can help to predict the takeoff and the long-term survival of firms at takeoff. I use three different long-horizon event study approaches and a hazard model to address my research questions. I find that abnormal returns are strongly positive in the year prior to takeoff, thus providing an important signal of the takeoff. Moreover, I find that negative abnormal returns in the year of takeoff and one year after takeoff increase the hazard of market exit by 9.5 times relative to firms without these negative abnormal returns. I discuss the implications of these findings for managers and future researchers.