Essays on Service Innovation

As economies are increasingly driven by services, the introduction of newservices to satisfy customers and improve firm value is becoming a critical issue formanagers. In my dissertation, I take a step in improving the understanding of serviceinnovations.In the first essay, I look at the determinants of the number of service innovationsintroduced by a firm and their interrelationship with customer satisfaction and firmvalue. Furthermore, I look how these interrelationships vary between Internet-EnabledService Innovations (IESIs) and Non-Internet-Enabled Service Innovations (NIESIs). Idevelop a system of equations that link service innovation, customer satisfaction andfirm value. I model the determinants of service innovations, using a zero-inflatedPoisson model. I estimate the model on a panel data set that I assembled across multipleindustries from multiple data sources such as the American Customer Satisfaction Index,Compustat, SDC Platinum, and LexisNexis. My results reveal that IESIs are morestrongly influenced by financial resources of the firm and by market growth than are NIESIs. Surprisingly, neither IESIs nor NIESIs have a significant direct effect oncustomer satisfaction. However, IESIs have a positive and significant effect on firmvalue.Given the differences between consumer markets and business markets, it isimportant to understand better the determinants and outcomes of business-to-businessservice innovations (B2B-SIs). In my second essay, I empirically address this issue. Idevelop a modeling system that relates service innovation to firm value. I estimate mymodel on unique panel data of service innovations. Results indicate that B2B-SIs havepositive effects on firm value. Furthermore, I find that the number of B2B-SIsintroduced by a firm is primarily determined by firm-level factors rather than marketlevelfactorsOverall, I find that regardless of firm type or market type, the number of serviceinnovations introduced by a firm has a substantial impact on firm value. In particular,IESIs and B2B-SIs increase firm value. In addition, the two essays also show that liquidfinancial resources are important determinants of service innovations. This is especiallytrue for IESIs and B2B-SIs.