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UM Study: Product Reviews in The Wall Street Journal Worth Millions to Investors; Research Reveals $500M Gain for Good Review, $200M Loss for Bad Review

July 02, 2008
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A new study finds that product reviews in Walter Mossberg’s long-running Personal Technology column in The Wall Street Journal translate into seismic shifts in stock price for the firms responsible for the new technologies.

The study, conducted by Joseph Johnson, assistant professor of marketing at the University of Miami School of Business Administration, and Gerard Tellis, professor of marketing at the University of Southern California’s Marshall School of Business, analyzed more than 400 firms whose products were reviewed in Mossberg’s column between 1991 and 2001. They found that firms receiving good product reviews enjoyed stock gains of 10 percent on average in the five days following the review. Firms whose products received poor reviews saw their stocks sink 5 percent over the following five days. In dollar terms, firms receiving positive product reviews saw average gains worth $500 million, while those receiving bad reviews suffered losses worth an average of $200 million.

The study is believed to be the first to systematically analyze the impact of product reviews in The Wall Street Journal column. The researchers identified and analyzed “abnormal returns,” meaning those returns that were over and above the normal rises and falls the firms would see in the market during the period following the reviews. The findings, recently published in Marketing Science, have significant implications for business leaders, investors and policy makers.

“When introducing new products, managers are often in a rush to market new products to beat out the competition. In doing so, they follow the logic of ‘It’s more important to be first than to be better,’” said co-author Professor Gerard Tellis from the USC Marshall School of Business. “This research proves that the successful business motto should be, ‘It’s better to be better than to be first.’”

“Because this study proves a negative product review can cause firms to suffer losses from which it might be difficult to recover, firms should wait to ensure that their products are good or very good before introducing them,” said Joseph Johnson, co-author and assistant professor of marketing at the University of Miami School of Business Administration.

A study published in the Journal of Business in 1991 found that the cumulative abnormal returns for all new products reviewed in the Mossberg column were on average .82 percent. Therefore, the results of this new study show that the premium for good quality (10 percent gain) and the penalty for poor quality (5 percent loss) are significantly higher than that for the average new product. This is a further indication that firms have much to gain by not rushing inferior products to market.

The researchers also found that the extent to which a firm’s stock price is impacted by a product review in Mossberg’s column depends upon the size of the firm. Small firms gained more from a positive product review than larger firms. And small firms were penalized less after a negative review than larger firms.

“This asymmetry occurs because investors react to news that surprises them,” said Johnson. “When the product of a small firm gets a positive review, investors are surprised – more so than they would be after a positive review about a larger firm’s product - so the stock price gets a significant boost.  When the product of a large firm gets a negative review, investors are surprised, and the large firm’s stock price suffers more so than that of a small firm after a negative product review,” said Johnson.
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