IDEAS home Printed from https://ideas.repec.org/a/inm/orisre/v4y1993i1p1-23.html
   My bibliography  Save this article

The Impact of Information Technology Investment Announcements on the Market Value of the Firm

Author

Listed:
  • Brian L. Dos Santos

    (Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Ken Peffers

    (School of Business-Camden, Rutgers University, Camden, New Jersey 08102)

  • David C. Mauer

    (Graduate School of Business, University of Wisconsin, 1155 Observatory Drive, Madison, Wisconsin 53706)

Abstract

Determining whether investments in information technology (IT) have an impact on firm performance has been and continues to be a major problem for information systems researchers and practitioners. Financial theory suggests that managers should make investment decisions that maximize the value of the firm. Using event-study methodology, we provide empirical evidence on the effect of announcements of IT investments on the market value of the firm for a sample of 97 IT investments from the finance and manufacturing industries from 1981 to 1988. Over the announcement period, we find no excess returns for either the full sample or for any one of the industry subsamples. However, cross-sectional analysis reveals that the market reacts differently to announcements of innovative IT investments than to followup, or noninnovative investments in IT. Innovative IT investments increase firm value, while noninnovative investments do not. Furthermore, the market's reaction to announcements of innovative and noninnovative IT investments is independent of industry classification. These results indicate that, on average, IT investments are zero net present value (NPV) investments; they are worth as much as they cost. Innovative IT investments, however, increase the value of the firm.

Suggested Citation

  • Brian L. Dos Santos & Ken Peffers & David C. Mauer, 1993. "The Impact of Information Technology Investment Announcements on the Market Value of the Firm," Information Systems Research, INFORMS, vol. 4(1), pages 1-23, March.
    • Handle: RePEc:inm:orisre:v:4:y:1993:i:1:p:1-23
    DOI: 10.1287/isre.4.1.1
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/isre.4.1.1
    Download Restriction: no
    File URL: https://libkey.io/10.1287/isre.4.1.1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:orisre:v:4:y:1993:i:1:p:1-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.