The Market Value Impact of IT Investments

This study applies the event study method, a method§to measure how a firm s stock price reacts to new§information, to a list of publicly traded Australian§firms. 217 announcements were selected relating to IT§investments over a period from 1996 to 2006. Positive§abnormal returns are observed on the announcement day§of each of three distinct time periods; during the§technology bubble (1996 to 1999), during the Year§2000 bug (Y2K bug) period (2000 - 2001), as well as§the period afterwards that ensued to 2006. These are§all statistically significant. Similar results were§also found when categorizing announcing firms into§two broad industry groups; IT firms and non-IT firms.§Each announcement was value-weighed based on firm§size and find that the market s assessment of the§returns to IT investments is more favourable towards§smaller firms than larger firms for the whole sample,§across all periods and the two industry groups. These§results are of practical relevance for the particular§Australian market under investigation given the§comparatively high levels of spending on IT in§Australia in relation to other OECD countries.