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Information Technology, Organizational Learning, and the Market Value of the Firm

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  • Hunter, Starling David, III

Abstract

This paper compares the mean and variance of cumulative abnormal returns following announcements of two types of information technology (IT) investments: those which entail the "exploitation" of firm's current capabilities vs. those which involve the exploration of new capabilities. The paper addresses two understudied questions in research on the contribution of IT to firm performance: the contingent nature of those contributions and the impact on risk (or variance), as well as on return (mean). To examine these questions I first performed a standard event study analysis on a sample of 150 announcements of IT investments made by 59 publicly-traded retailers between the years 1990-1997. I performed two types of multivariate regression analysis on the event returns: ordinary least squares (to assess the impact of the two types of investments on the mean level of returns) and multiplicative heteroscedastic regression (to determine the impact on the variance of the returns). The results indicate that, as expected, IT investments "exploitative" IT investments have the same mean as, yet lower variance than, abnormal returns associated with "exploratory" IT investments. Somewhat unexpectedly, I found that both types of IT investments had a significantly negative impact on the market value of the firm. Taken together, these findings suggest that the characteristics of IT investments themselves, as well as the industry and strategic context within which they were made, are important determinants of the market value of the firm. As such, the results of this study should be of interest to researchers interested in the contribution of IT to firm performance and to MIS professionals both in the retailing sector, in particular, and other service sectors, more generally.

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  • Hunter, Starling David, III, 2003. "Information Technology, Organizational Learning, and the Market Value of the Firm," Working papers 4418-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    • Handle: RePEc:mit:sloanp:3542
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    2. C. Ranganathan & Carol V. Brown, 2006. "ERP Investments and the Market Value of Firms: Toward an Understanding of Influential ERP Project Variables," Information Systems Research, INFORMS, vol. 17(2), pages 145-161, June.
    3. Konchitchki, Yaniv & O'Leary, Daniel E., 2011. "Event study methodologies in information systems research," International Journal of Accounting Information Systems, Elsevier, vol. 12(2), pages 99-115.
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    5. Beasley, Mark & Bradford, Marianne & Dehning, Bruce, 2009. "The value impact of strategic intent on firms engaged in information systems outsourcing," International Journal of Accounting Information Systems, Elsevier, vol. 10(2), pages 79-96.
    6. Sanjeev Dewan & Fei Ren, 2007. "Risk and Return of Information Technology Initiatives: Evidence from Electronic Commerce Announcements," Information Systems Research, INFORMS, vol. 18(4), pages 370-394, December.
    7. Takeda, Fumiko & Takeda, Koichi & Takemura, Toshihiko & Ueda, Ryota, 2021. "The impact of information technology investment announcements on the market value of the Japanese regional banks," Finance Research Letters, Elsevier, vol. 41(C).
    8. Russell J. Craig & Niamh M. Brennan, 2012. "An exploration of the relationship between language choice in CEO letters to shareholders and corporate reputation," Accounting Forum, Taylor & Francis Journals, vol. 36(3), pages 166-177, September.
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    10. Ariel K. H. Lui & Maggie C. M. Lee & Eric W. T. Ngai, 2022. "Impact of artificial intelligence investment on firm value," Annals of Operations Research, Springer, vol. 308(1), pages 373-388, January.
    11. Subhanjan Sengupta & Arunaditya Sahay, 2017. "Comparing mission statements of social enterprises and corporate enterprises in the new and renewable energy sector of India: a computer aided content analysis study," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 7(1), pages 1-16, December.

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