Investors' evaluations of price-increase preannouncements

Leon Gim Lim, Kapil R. Tuli and Marnik G. Dekimpe

International Journal of Research in Marketing, 2018, vol. 35, issue 3, 359-377

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: Price increase; Preannouncement; Event study; Abnormal returns; Marketing-finance interface (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ijrema:v:35:y:2018:i:3:p:359-377

DOI: 10.1016/j.ijresmar.2018.06.001

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