IT investments and firm stock market value: The mediating role of stock analysts

Xueming Luo, Bin Gu, Cheng Zhang

Research output: Chapter in Book/Report/Conference proceedingConference contribution

3 Scopus citations

Abstract

This study provides a new perspective to the longstanding debate on the business value of IT. Prior research on IT value takes an internal perspective - focusing on business processes and complementary resources that help create value form IT investments. In this study, we take an external perspective - focusing on the value discovery role of stock analysts. Stock analysts collect information about firms' IT investments and provide informed recommendations to investors in the financial market. Research in finance has long shown that stock analysts can reduce information asymmetry between the firm and investors. However, despite that IT investments are known for their complexity and inherent risks, little is known about the role of stock analysts in helping the financial market understand firms' investments in IT. We address this question empirically using IT assets and firm performance data of Fortune 1000 firms between 1996 and 2007. Our empirical evidence suggests that stock analysts play an intricate mediating role in the stock market evaluation of IT investments. Analyst recommendations have a stronger mediating role in the effects of enterprise IT systems (ERP and CRM) on firm market value, but a weaker and insignificant mediating role in the effects of function IT systems (DSS, HR and AIS). In addition, we find that the mediating role of financial analysts for IT investments is more salient when the firm's market environments are more uncertain and unpredictable. These findings suggest that financial analysts play a critical role in the market valuation of firms' IT investments.

Original languageEnglish (US)
Title of host publicationProceedings of the 47th Annual Hawaii International Conference on System Sciences, HICSS 2014
PublisherIEEE Computer Society
Pages4093-4102
Number of pages10
ISBN (Print)9781479925049
DOIs
StatePublished - Jan 1 2014
Event47th Hawaii International Conference on System Sciences, HICSS 2014 - Waikoloa, HI, United States
Duration: Jan 6 2014Jan 9 2014

Publication series

NameProceedings of the Annual Hawaii International Conference on System Sciences
ISSN (Print)1530-1605

Other

Other47th Hawaii International Conference on System Sciences, HICSS 2014
CountryUnited States
CityWaikoloa, HI
Period1/6/141/9/14

ASJC Scopus subject areas

  • Engineering(all)

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    Luo, X., Gu, B., & Zhang, C. (2014). IT investments and firm stock market value: The mediating role of stock analysts. In Proceedings of the 47th Annual Hawaii International Conference on System Sciences, HICSS 2014 (pp. 4093-4102). [6759108] (Proceedings of the Annual Hawaii International Conference on System Sciences). IEEE Computer Society. https://doi.org/10.1109/HICSS.2014.505