Blaze New Trails for Others to Follow : Evidence from Scanner Data

Tracking more than 100 billion weekly transactions of two million products at the barcode level from 2007 to 2017, we identify and categorize new products as pioneers, followers and improvers to study corporate exploratory and/or exploitative innovation strategies. Firms introducing “pioneer” products are associated with greater future profitability and stock returns than those introducing “improver” and “follower” products. Price elasticity of demand explains pioneering (exploratory) innovation’s operating success. Meanwhile, limited investor attention accounts for pioneering firms’ superior stock performance. We exploit two exogenous shocks to firms’ new product development decisions to address endogeneity concerns