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An examination of the long-term business value of investments in information technology

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Abstract

In this paper, we examine the effects of investments in Information Technology (IT) on the long term business values of organizations. The regression discontinuity design is used in this research to examine eight hundred and ten IT investment announcements collected from the period 1982–2007. Our results found that press releases can affect the market value of a firm by possibly providing investors with a better idea of a firm’s current and future operations and strategy. On the other hand, these press releases also appear to attract more transient investors. The attraction of transient investors likely suggests the market believes the IT investing firm is serious about its potential for growth and expansion.

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Notes

  1. We tested the robustness of the regression model (Leamer 1983; Wooldridge 2015) found in equation 2 to determine the relative stability of the parameter estimates. To do so, we included control variables as described in Table 4 in the regression specification. When different control variables were introduced to the regression model, the overall direction and magnitude of the parameter estimates were structurally similar to the regression model found in equation 2 – which indicates the regression model is not likely to have been misspecified.

  2. Because the CAPM oversimplifies the market by comparing excess investor returns to the market using only beta, the Fama-French 3 factor model was used to control for the impact of important variables that influence the market’s movements including differences between small and large cap stocks and value and growth stocks.

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Acknowledgements

Alain Chong would like to acknowledge the support from National Science Foundation of China (NSFC). The project is partially supported by NSFC No. 71402076.

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Authors and Affiliations

  1. St. John’s University, New York, NY, USA

    Vincent J. Shea II

  2. Nottingham University Business School China, University of Nottingham, Ningbo, China

    Kevin E. Dow & Alain Yee-Loong Chong

  3. Department of Management and Marketing, Hong Kong Polytechnic University, Kowloon, Hong Kong

    Eric W. T. Ngai

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  1. Vincent J. Shea II
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Correspondence to Alain Yee-Loong Chong.

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Shea, V.J., Dow, K.E., Chong, A.YL. et al. An examination of the long-term business value of investments in information technology. Inf Syst Front 21, 213–227 (2019). https://doi.org/10.1007/s10796-017-9735-5

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