The Impact of E-Commerce Announcements on the Market Value of Firms

Information Systems Research, June 2001

20 Pages Posted: 14 May 2001

See all articles by Mani Subramani

Mani Subramani

University of Minnesota - Twin Cities - Carlson School of Management

Eric Walden

Texas Tech University - Area of Information Systems and Quantitative Sciences (ISQS)

Abstract

Firms are undertaking growing numbers of e-commerce initiatives and increasingly making significant investments required to participate in the growing online market. However, empirical support for the benefits to firms from e-commerce is weaker than glowing accounts in the popular press based on anecdotal evidence would lead us to believe. In this paper, we explore the following questions: What are the returns to shareholders in firms engaging in e-commerce? How do the returns to conventional, brick and mortar firms from e-commerce initiatives compare with returns to the new breed of net firms? How do returns from business-to-business e-commerce compare with returns from business-to-consumer e-commerce? How do the returns to e-commerce initiatives involving digital goods compare to initiatives involving tangible goods? We examine these issues using event study methodology and assess the cumulative abnormal returns to shareholders (CARs) for 251 e-commerce initiatives announced by firms between October and December 1998. The results suggest that e-commerce initiatives do indeed lead to significant positive CARs for firms' shareholders. While the CARs for conventional firms are not significantly different from those for net firms, the CARs for business-to-consumer (B2C) announcements are higher than that for business-to-business (B2B) announcements. Also, the CARs with respect to e-commerce initiatives involving tangible goods are higher than for those involving digital goods. Our data were collected in the last quarter of 1998 during a unique bull market period and the magnitudes of CARs (between 4.9 and 23.4 percent for different sub-samples) in response to e-commerce announcements are larger than those reported for a variety of other firm actions in prior event studies. This paper presents the first empirical test of the dot com effect, validating popular anticipations of significant future benefits to firms entering into e-commerce arrangements.

Keywords: Electronic Commerce, B2B, B2C, Digital Goods, Tangible Goods, Event Study

Suggested Citation

Subramani, Mani and Walden, Eric A., The Impact of E-Commerce Announcements on the Market Value of Firms. Information Systems Research, June 2001, Available at SSRN: https://ssrn.com/abstract=269668 or http://dx.doi.org/10.2139/ssrn.269668

Mani Subramani (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
IDSc Department
Minneapolis, MN 55455
United States
612-624-8030 (Phone)

Eric A. Walden

Texas Tech University - Area of Information Systems and Quantitative Sciences (ISQS) ( email )

Lubbock, TX 79409
United States
806-742-1925 (Phone)

HOME PAGE: http://ericwalden.net

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