Abstract
Extant research shows that radical innovations have a strong positive impact on the stock market of their parent firms. However, researchers who examine their antecedents and consequences typically treat radical innovations as a homogeneous group and focus on averages, often within a single industry. Yet published lists of radical innovations indicate that this term encompasses a large variety of products, ranging from electric can openers to personal computers (Chandy and Tellis 2000). Using a comprehensive set of radical innovations introduced during the past two centuries we document that firms involved in the commercialization of radical innovations experience a stock market bubble, but only for radical innovations that are also network goods. We document the timing and magnitude of each bubble and show that, on average, these innovations add significant value to their parent firms even after the bubble has deflated. We also show that bubbles associated with radical innovations allow their parent firms to raise relatively cheaper equity capital. From the unique historical evidence assembled in this paper we derive several contributions to theory, practice and policy making, as well as a list of research questions that can further advance our understanding of this rich area of inquiry.

Authors
Alina Sorescu (Texas A&M University), Sorin Sorescu (Texas A&M University), William Armstrong (Texas Tech University) and Bart Devoldere (Vlerick Business School)