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

47 Pages Posted: 27 Jan 2001

See all articles by Shivaram Rajgopal

Shivaram Rajgopal

Columbia Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

Suresh Kotha

Foster School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 2000


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.

JEL Classification: M41, G12

Suggested Citation

Rajgopal, Shivaram and Venkatachalam, Mohan and Kotha, Suresh, Managerial Actions, Stock Returns, and Earnings: The Case of Business-to-Business Internet Firms (December 2000). Available at SSRN: or

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

Suresh Kotha

Foster School of Business ( email )

University of Washington
Seattle, WA
United States
206-543-4466 (Phone)
206-683-9392 (Fax)

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