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The Impact of e-Commerce announcements on the market value of firms

The Impact of e-Commerce announcements on the market value of firms. By Mani Subramani and Eric Walden, Information Systems Research June 2001 v12 i2 p135 Presented by Stephen Lackey November 23, 2004. Way back in 1998…. Data for study collected in Oct-Dec 1998

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The Impact of e-Commerce announcements on the market value of firms

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  1. The Impact of e-Commerce announcements on the market value of firms By Mani Subramani and Eric Walden, Information Systems Research June 2001 v12 i2 p135 Presented by Stephen Lackey November 23, 2004

  2. Way back in 1998… • Data for study collected in Oct-Dec 1998 • Do we have anything to learn from dot-com-era e-Commerce announcements? • “Excessive returns” were hardly abnormal in the US stock market run-up to early 2000, when the stock market bubble burst. • All IT investments assumed by investors to produce high strategic advantages (not to mention, “IT mattered”)

  3. HYPOTHESES in Study

  4. Cumulative Abnormal Returns (CAR) • Proxy measure to signal investor belief in management optimism following e-commerce initiative. • Similar effects found in stock splits. • Assumption that management optimism means future growth potential. • Assumption that e-commerce projects will be strategic and successful. • Can managers become more optimistic just because the stock price went up?

  5. HYPOTHESIS 1 (H1). The abnormal returns attributable to e-commerce announcements are positive. • Study found stronger returns in B2B initiatives than for B2C. • Tangible goods enjoyed stronger returns than e-services or other “e-products” (Presumably B2C). • Net firms found more “responsive” than conventional firms due to adaptability.

  6. HYPOTHESIS 2 (H2). The abnormal returns attributable to e-commerce announcements of conventional firms are different from the abnormal returns attributable to e-commerce announcements of net firms. • Is B2B e-commerce worth $7.3B today? • Did the internet streamline the supply chain for conventional firms? • EDI and barcoding helped, but somebody still has to move the boxes. • Internet-enabled RFID may prove to do so, but not for a while. • Amazon’s automated warehouses reduced labor, but by reducing labor, not because of electronic commerce.

  7. HYPOTHESIS 3 (H3). The abnormal returns attributable to business-to-business e-commerce announcements are different from the abnormal returns attributable to business-to-consumer e-commerce announcements.HYPOTHESIS 4 (H4). The abnormal returns attributable to e-commerce announcements involving tangible goods are different from the abnormal returns attributable to e-commerce announcements involving digital goods. • Producers of tangible goods valued more by investors than “virtual” ones. • E-services rapidly become commodities and free as venture capital chased ad-based business plans.

  8. 2004: CAR running on empty? • Investors are privy to “inside information” through public announcements? • IT fueled by competitive spending between traditional firms and Net firms whose business plans priced goods below cost. • “Irrational Exuberance” by amateur investors as 401K plans poured money into tech stocks. • Strong positive returns began immediately BEFORE announcements. Information leaks designed to add to hype?

  9. Whatever happened to the pets.com sock puppet? • Net firms found more “responsive” than conventional firms due to adaptability. • Net firms younger and have more volatile business plans as they seek profitablity. • Net firms placed burden on “cutting edge” IT infrastructure to attract customers in lieu of established presence.

  10. Questions? November 30, 1999

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