General IS Topics
Loading...
Paper Type
Short
Paper Number
1995
Description
We contribute to IT business value literature by surfacing IT’s economic impact on firms as reflected in capital markets. We introduce a new economic affinity – digital link – to characterize the digital inter-connectedness of a focal firm with other firms based on IT investment similarity. Results indicate that digital links are an indispensable source leading to stock price co-movement. Specifically, the returns of digital-linked firms have strong predictive power for a focal firm’s returns as investors gradually integrate the value-relevant information originating from digital links into focal firm’s stock prices. This effect is economically significant with a monthly return of 25.95 basis points from a long-short trading strategy. It is more pronounced for a focal firm with (i) less coverage from analysts and (ii) high early-stage IT investments. For scholars, managers, and policymakers, this study surfaces why attention to digital inter-connectedness among firms is essential given its implications in capital markets.
Recommended Citation
Jia, Ning; Li, Yu; Rai, Arun; Xu, Sean Xin; and Yin, Zhitao, "Digital Link and Return Predictability" (2020). ICIS 2020 Proceedings. 6.
https://aisel.aisnet.org/icis2020/general_topics/general_topics/6
Digital Link and Return Predictability
We contribute to IT business value literature by surfacing IT’s economic impact on firms as reflected in capital markets. We introduce a new economic affinity – digital link – to characterize the digital inter-connectedness of a focal firm with other firms based on IT investment similarity. Results indicate that digital links are an indispensable source leading to stock price co-movement. Specifically, the returns of digital-linked firms have strong predictive power for a focal firm’s returns as investors gradually integrate the value-relevant information originating from digital links into focal firm’s stock prices. This effect is economically significant with a monthly return of 25.95 basis points from a long-short trading strategy. It is more pronounced for a focal firm with (i) less coverage from analysts and (ii) high early-stage IT investments. For scholars, managers, and policymakers, this study surfaces why attention to digital inter-connectedness among firms is essential given its implications in capital markets.
When commenting on articles, please be friendly, welcoming, respectful and abide by the AIS eLibrary Discussion Thread Code of Conduct posted here.
Comments
2-General