Abnormal Stock Market Returns to Business Model Extension Announcements: Value Drivers & Moderators

The value-creation potential of business model extensions (BME) in incumbent companies remains a subject of ongoing debate and is currently not substantiated by market-value focused empirical research. Especially the moderating role of economic uncertainty and the interplay with traditional product-industry diversification have not been empirically examined. This study aims to close that gap. We utilize an event study setup to measure the value-creating effect of BME and its moderators. Using a unique dataset of joint ventures in the high-tech industry industry, we measure the effects of BME and its moderators on abnormal stock market returns. Our findings indicate that BME leads to higher abnormal stock market returns. This effect is further amplified under company-level, industry-level, and macroeconomic uncertainty. Additionally, we discover that, under these uncertainties, combinations of BME and product-industry diversification are value-creating, whereas product-industry diversification alone tends to be value-destroying.