IDEAS home Printed from https://ideas.repec.org/p/ecl/stabus/1673.html
   My bibliography  Save this paper

Managerial Actions, Stock Returns, and Earnings: The Case of Business-to-Business Internet Firms

Author

Listed:
  • Venkatachalam, Mohan

    (Stanford U)

  • Rajgopal, Shivaram

    (U of Washington)

  • Kotha, Suresh

Abstract

In this study we investigate the role played by managerial actions in explaining stock market returns and accounting earnings of 57 Internet firms engaged in Business-to-Business (B2B) e-commerce. We classify 3,166 managerial actions undertaken by our sample firms between the firm's IPO date and September 30, 2000 into ten key action categories: (1) acquisition of major customers, (2) introduction of new products and services, (3) promotional and marketing actions, (4) expansion into international markets, (5) actions taken to address the concerns of stakeholders such as employees and the community at large, (6) announcements of technology, marketing, and distribution alliances, (7) completion of acquisitions, (8) management team building actions, (9) announcement of recognition and awards bestowed upon the firm, and (10) organizational changes. We undertake an event study over a three-day window surrounding the announcement of each action. Our event study results indicate that announcements of alliances (technology, marketing, and distribution), acquisition of new customers, and promotions are associated with positive abnormal returns. Next, using the factor analysis technique we group the counts of managerial actions taken by each firm over its post-IPO life into three broad managerial initiatives-market penetration, organization building, and legitimacy building. These three initiatives explain a substantial portion of the cross-sectional variation in the firms' post-IPO life stock market returns beyond that explained by accounting earnings. However, accounting earnings do not explain variation in post-IPO stock returns. Thus, investors appear to supplement relatively meager accounting information with data about managerial actions in setting stock prices of B2B Internet firms.

Suggested Citation

  • Venkatachalam, Mohan & Rajgopal, Shivaram & Kotha, Suresh, 2000. "Managerial Actions, Stock Returns, and Earnings: The Case of Business-to-Business Internet Firms," Research Papers 1673, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1673
    as

    Download full text from publisher

    File URL: http://gsbapps.stanford.edu/researchpapers/library/RP1673.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    3. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87, World Scientific Publishing Co. Pte. Ltd..
    4. Steven Tadelis & Oliver E.Williamson, 2012. "Transaction Cost Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    5. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    6. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    7. Edwin Mansfield & John Rapoport & Jerome Schnee & Samuel Wagner & Michael Hamburger, 1971. "Research and Innovation in the Modern Corporation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-01639-6, October.
    8. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    9. Jarillo, J. Carlos, 1989. "Entrepreneurship and growth: the strategic use of external resources," Journal of Business Venturing, Elsevier, vol. 4(2), pages 133-147, March.
    10. Amir, Eli & Lev, Baruch, 1996. "Value-relevance of nonfinancial information: The wireless communications industry," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 3-30, October.
    11. Chaney, Paul K & Devinney, Timothy M & Winer, Russell S, 1991. "The Impact of New Product Introductions on the Market Value of Firms," The Journal of Business, University of Chicago Press, vol. 64(4), pages 573-610, October.
    12. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    13. Bruce Kogut, 1988. "Joint ventures: Theoretical and empirical perspectives," Strategic Management Journal, Wiley Blackwell, vol. 9(4), pages 319-332, July.
    14. Oliver E. Williamson, 2025. "Transaction Cost Economics," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, edition 0, chapter 4, pages 47-71, Springer.
    15. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, Decembrie.
    16. Dan Elfenbein & Josh Lerner, 2001. "Links and Hyperlinks: An Empirical Analysis of Internet Portal Alliances, 1995-1999," NBER Working Papers 8251, National Bureau of Economic Research, Inc.
    17. Trueman, B & Wong, MHF & Zhang, XJ, 2000. "The eyeballs have it: Searching for the value in internet stocks," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 137-162.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christoph Grimpe & Ulrich Kaiser, 2008. "Gains and Pains from Contract Research: A Transaction and Firm-level Perspective," CIE Discussion Papers 2008-01, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    2. Henar Alcalde Heras, 2014. "Collaboration Patterns and Product Innovation in the Basque Country. Does a Firm’s Nationality Matter?," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 10(3), pages 29-56.
    3. Gooroochurn, Nishaal & Hanley, Aoife, 2007. "A tale of two literatures: Transaction costs and property rights in innovation outsourcing," Research Policy, Elsevier, vol. 36(10), pages 1483-1495, December.
    4. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    5. Hensher, David A., 2010. "Incompleteness and clarity in bus contracts: Identifying the nature of the ex ante and ex post perceptual divide," Research in Transportation Economics, Elsevier, vol. 29(1), pages 106-117.
    6. Weiß, Christian, 2010. "The Ownership Concentration of Firms: Three Essays on the Determinants and Effects," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 30247, March.
    7. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.
    8. John Finch & Nicola Dinnei, 2001. "Capturing Knightian Advantages of Large Business Organisations Through Group Decision-making Processes," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(3), pages 379-403.
    9. Jackie Krafft, 2006. "Business history and the organization of industry," Post-Print hal-00211780, HAL.
    10. Morasch, Karl, 1995. "Moral hazard and optimal contract form for R&D cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 63-78, September.
    11. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    12. Almas Heshmati, 2003. "Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 79-112, February.
    13. Williamson, Oliver E., 2007. "Transaction Cost Economics: An Introduction," Economics Discussion Papers 2007-3, Kiel Institute for the World Economy (IfW Kiel).
    14. Jürgen Peters, 2000. "Buyer Market Power and Innovative Activities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 16(1), pages 13-38, February.
    15. Roodhooft, Filip & Warlop, Luk, 1999. "On the role of sunk costs and asset specificity in outsourcing decisions: a research note," Accounting, Organizations and Society, Elsevier, vol. 24(4), pages 363-369, May.
    16. Richard N. Langlois & Nicolai J. Foss, 1999. "Capabilities and Governance: The Rebirth of Production in the Theory of Economic Organization," Kyklos, Wiley Blackwell, vol. 52(2), pages 201-218, May.
    17. Bruce Rasmussen, 2010. "Innovation and Commercialisation in the Biopharmaceutical Industry," Books, Edward Elgar Publishing, number 13680.
    18. Bertschek, Irene, 2008. "Wissensvermittlung versus Legitimationsfunktion: Warum engagieren Unternehmen IT-Berater?," ZEW Discussion Papers 08-083, ZEW - Leibniz Centre for European Economic Research.
    19. Emeric Lendjel & Marianne Fischman, 2010. "Changements institutionnels et efficience de l'affrètement au voyage dans le transport fluvial de marchandises," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00515244, HAL.
    20. Inés Macho‐Stadler & Noriaki Matsushima & Ryusuke Shinohara, 2021. "Organizational Structure and Technological Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 69(4), pages 785-816, December.

    More about this item

    Statistics

    Access and download statistics

    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:ecl:stabus:1673. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/gsstaus.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.