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Mossberg Tech Reviews can Move Stock Markets, Research Shows

Small Companies with Good Products get an Outsized Bump from Positive Journal Reviews

December 20, 2007 -- How much is quality worth? Do good reviews have more impact on a company’s stock price than bad reviews? And do reviews have a bigger impact on small companies or big ones?

Those questions and more are answered in a just-published analysis of what happens to company stock prices in the days after Wall Street Journal technology writer Walt Mossberg has published a review of their products.

"Given the negative impacts on companies with bad products, it is better to be at least good than to rush to market with a poor-quality product that earns bad reviews," said Professor Gerard Tellis of the USC Marshall School of Business. "If you do cut corners, it will hurt you. If you’re a big company and you cut corners, it will hurt you really badly."

Tellis and Joseph Johnson of the University of Miami are co-authors of "The Value of Quality," their paper published today in the research journal Marketing Science .

Mossberg's regular Thursday column in the Journal has been a respected and influential voice in the world of technology for many years. Given Mossberg's prominence and constant presence, Tellis and Johnson looked at a decade's worth of Mossberg columns, reviewing 421 products of publicly traded companies, to see if there were "abnormal" shifts positive or negative in share prices in the days immediately following the publication of a Mossberg review.

Among their key findings:

  • Strongly good or bad Mossberg reviews – a consistent, long-term stand-in for other measurements of product "quality" – can have a significant impact on a company's share price within a few days of the column's publication.
  • Bad reviews by Mossberg sent share prices tumbling an average of 5 percent.
  • Good reviews added an average 10 percent to share prices. Both positive and negative swings in share prices are significantly larger than indicated in previous research.
  • Share prices for big firms were hit harder by negative reviews than were those of small companies. The authors speculate that investors expect bigger companies to do a better job ensuring quality, and punish them more when they don't deliver.
  • Conversely, small firms get a bigger bump upward when their products receive a good review. Again, the authors speculate that it may be a function of expectations. Large companies are expected to create good products and get less credit when they do as expected.
  • Stock prices consistently started dropping slightly before publication of negative reviews of big firms' products. The authors posit several possible causes for the early drop other than premature "leakage" to outsiders. Regardless, given the reviews’ impacts on share prices, they urge continued vigilance by Journal editors to ensure information on negative reviews doesn’t circulate prematurely.

The study's results have several implications for researchers, corporate strategists and investors:

  • Quality products, at least at some minimum level, matter to a company’s bottom-line success. Just introducing new products at a steady clip won't be enough. Bad products, in fact, can badly damage a company's financial prospects.
  • Strategists and product designers should consider four factors that generate good reviews: compatibility, performance, ease of use and utility of features. Negative reviews frequently are based on a product’s inconvenience, confusing interface or complicated design.
  • Investors can profit by using reviews as a guide to which companies deserve their backing.

A video interview of Professor Tellis discussing "The Value of Quality" is available here.

The video interview also has been posted at USC Marshall’s YouTube site: www.youtube.com/user/USCMarshall

About USC Marshall School of Business
Based in Los Angeles at the University of Southern California, at the crossroads of the Pacific Rim, the USC Marshall School is the best place to learn the art and science of business. The school's programs serve nearly 5,000 undergraduate, graduate, professional and executive-education students, who attend classes in facilities at the main Los Angeles campus, as well as satellite facilities in Irvine and San Diego. USC Marshall also operates a Global MBA program in conjunction with Jiao Tong University in Shanghai, China.