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Going digital: implications for firm value and performance

Author

Listed:
  • Wilbur Chen

    (Hong Kong University of Science and Technology Business School)

  • Suraj Srinivasan

    (Harvard University)

Abstract

We examine firm value and performance implications of the growing trend of nontechnology companies engaging in activities relating to digital technologies. We measure digital activities in firms based on the disclosure of digital words in the business description section of 10-Ks. Digital activities are associated with a market-to-book ratio 8%–26% higher than industry peers, and only 25% of the differences in market-to-book is explained by accounting capitalization restrictions. To control for selection bias, we implement lagged dependent variable and IV regressions, and our market-to-book findings are robust to these specifications. Portfolios formed on digital activity disclosure earn a Daniel et al. The Journal of Finance 52 (3): 1035–1058 (1997)-adjusted return of 30% over a three-year horizon and a monthly alpha of 44-basis-points. On the other hand, we find weak evidence of near-term, positive improvements in fundamental performance, as we find some evidence of interim productivity increases but declines in sales growth conditional on digital activities.

Suggested Citation

  • Wilbur Chen & Suraj Srinivasan, 2024. "Going digital: implications for firm value and performance," Review of Accounting Studies, Springer, vol. 29(2), pages 1619-1665, June.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:2:d:10.1007_s11142-023-09753-0
    DOI: 10.1007/s11142-023-09753-0
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    More about this item

    Keywords

    Digital technologies; Valuation; Return predictability; Financial statement analysis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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