The Value-Relevance of Network Advantages: The Case of E-Commerce Firms

Posted: 21 Oct 2002

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

Abstract

We show that network advantages constitute an important intangible asset that goes unrecognized in the financial statements. For a sample of e-commerce firms, we find that network advantages created by website traffic have substantial explanatory power for stock prices over and above traditional summary accounting measures such as earnings and book value of equity. When we allow network advantages to be endogenously determined by managerial actions, we find that at least part of the value-relevance of network effects stems from the presence of affiliate referral programs and higher media visibility. Network effects are most valuable to auction sites and portals. Network advantages are positively associated with one-year ahead and two-year ahead earnings forecasts provided by equity analysts.

JEL Classification: G12, G29, M41

Suggested Citation

Rajgopal, Shivaram and Venkatachalam, Mohan and Kotha, Suresh, The Value-Relevance of Network Advantages: The Case of E-Commerce Firms. Available at SSRN: https://ssrn.com/abstract=319885

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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