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International Journal of Production Economics

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DOI: 10.1016/j.ijpe.2021.108369


Business model innovation by manufacturing firms, through the addition of services to the core product offerings, has been steadily on the rise. However, this can pose risks for the firms’ long-term viability and profitability. Here, we examine the short-term financial effects of the sale of different product-service combinations. We use the event study methodology to investigate the stock market reaction to 1025 new contract announcements by 41 large manufacturers from 1987 to 2016.679 of these announcements involve the sale of standalone products, while the remaining 346 are product-service deals which we classify as low-, medium- or high-risk depending on whether they involve the provision of product-oriented (or smoothing) services, use-oriented and adapting services, and result-oriented (or substituting) services, respectively. Our results indicate that equity investors react positively to announcements of low-risk service deals and pure product sales. In contrast, we do not find an overall significant market reaction to announcements of medium- and high-risk service deals, suggesting that shareholders are not generally confident in the value creating potential of these types of services. However, post-hoc analysis suggests that the abnormal returns to service deals are affected by both firm-specific (financial leverage and service infusion level) and contract-specific (duration and value) factors. We explain these findings by considering the complexities characterizing these types of services and the general lack of transparency in the agreed terms and pricing of service contracts.


Accepted version. International Journal of Production Economics, Vol. 277 (February 2022): 108369. DOI. © 2022 Elsevier. Used with permission.

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