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

Author

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  • Mani Subramani

    (IDSc Department, Carlson School of Management, University of Minnesota, 321 19th Avenue S, Minneapolis, Minnesota 55455)

  • Eric Walden

    (IDSc Department, Carlson School of Management, University of Minnesota, 321 19th Avenue S, Minneapolis, Minnesota 55455)

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 those 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% for different subsamples) 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.

Suggested Citation

  • Mani Subramani & Eric Walden, 2001. "The Impact of E-Commerce Announcements on the Market Value of Firms," Information Systems Research, INFORMS, vol. 12(2), pages 135-154, June.
    • Handle: RePEc:inm:orisre:v:12:y:2001:i:2:p:135-154
    DOI: 10.1287/isre.12.2.135.9698
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    References listed on IDEAS

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