Article: Breakthrough markets, innovation and internet firms Journal: International Journal of Business Innovation and Research (IJBIR) 2012 Vol.6 No.3 pp.322 - 335 Abstract: We examine the extent to which financial factors affected stock price movements of internet firms between 1998 and 2007. We classify internet firms into two categories: breakthrough internet firms (BIFs) and reformed internet firms (RIFs), and examine the differences between them. We find that many internet firms suffer from losses, especially in their early years, and that cash flows have played a more important role in the valuation of internet firms than net income or sales. We also find that leverage has a negative effect on stock returns for both types of internet firms with a greater effect for RIFs than for BIFs, and that growth has a positive impact on stock returns for BIFs but a negative impact for RIFs. Overall, BIFs on average perform better than RIFs. These findings imply that blue ocean strategies or innovations do not always create profits but may cost more in early years of strategy, and that breakthrough markets are better for the firms to increase their values than reformed markets. In addition, the results also imply that innovation can be achieved by small firms in the perfect competition, different from the Schumpeterian hypothesis. Inderscience Publishers - linking academia, business and industry through research

Title: Breakthrough markets, innovation and internet firms

Authors: Jaehan Koh; Bin Wang

Addresses: Department of Economics and Finance, College of Business Administration, University of Texas-Pan American, 1201 W University Drive, Edinburg, TX 78539, USA ' Department of Computer Information Systems and Quantitative Methods, College of Business Administration, University of Texas-Pan American, 1201 W University Drive, Edinburg, TX 78539, USA

Abstract: We examine the extent to which financial factors affected stock price movements of internet firms between 1998 and 2007. We classify internet firms into two categories: breakthrough internet firms (BIFs) and reformed internet firms (RIFs), and examine the differences between them. We find that many internet firms suffer from losses, especially in their early years, and that cash flows have played a more important role in the valuation of internet firms than net income or sales. We also find that leverage has a negative effect on stock returns for both types of internet firms with a greater effect for RIFs than for BIFs, and that growth has a positive impact on stock returns for BIFs but a negative impact for RIFs. Overall, BIFs on average perform better than RIFs. These findings imply that blue ocean strategies or innovations do not always create profits but may cost more in early years of strategy, and that breakthrough markets are better for the firms to increase their values than reformed markets. In addition, the results also imply that innovation can be achieved by small firms in the perfect competition, different from the Schumpeterian hypothesis.

Keywords: breakthrough internet firms; reformed internet firms; blue ocean strategy; innovation; Schumpeterian hypothesis; stock price movements; stock markets; small firms.

DOI: 10.1504/IJBIR.2012.046630

International Journal of Business Innovation and Research, 2012 Vol.6 No.3, pp.322 - 335

Published online: 12 Dec 2014 *

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Title: Breakthrough markets, innovation and internet firms

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