an event study of the market value.pdfVIP

Research Report: A Reexamination of IT Investment and the Market Value of the Firm—An Event Study Methodology Kun Shin Im • Kevin E. Dow • Varun Grover The College of Business and Administration, University of Colorado at Denver, Denver, Colorado 80217 Accounting Department, The Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania 19122 Management Science Department, The Darla Moore School of Business, University of South Carolina, Columbia, South Carolina 29208 kim@ • kdow@ • vgrover@ valuating the effectiveness of Information Technology (IT) investments has always been Ean elusive but important goal of IS researchers. This study builds on a prior study that examined changes in the market value of the firm as reflected by the stock price in response to IT investment announcements. Data on stock prices were analyzed for 238 publicly traded companies. In addition to the stock price analysis, reaction of trading volume to the announce- ments was also examined to identify whether IT investment announcements affect investors’ beliefs about IT value. Potentially confounding factors such as industry, size, and time lag effects were also analyzed. Size and time lag effects were found for all IT investment an- nouncements. Reactions of price and volume were negatively related to firm size and became more positive over time. The positive excess return for smaller firms shows that smaller firms can leverage the lower price/performance ratio of new IT and rea pgreater rewards from IT investments than larger firms. Also, the result of time la