Article2009

The impact of enterprise application integration on stock prices

Narcyz Roztocki · Heinz Roland Weistroffer

13 citations0/0 files storedJournal of Enterprise Information Management

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Information Technology Governance and Strategy Financial Markets and Investment Strategies ERP Systems Implementation and Impact

Abstract

Purpose Enterprise application integration (EAI) technologies are critical to functionally integrate diverse corporate computer systems, and as such may be expected to have a positive effect on business value. The purpose of this paper is to examine the market reaction to announcements of EAI investments as a surrogate for investor perceived business value of such technology. Design/methodology/approach An event study approach is used with 81 announcements of EAI investments between 1998 and 2005, taken from Lexis‐Nexis database. Findings The results suggest that investors do not always receive EAI investments positively, especially if the announcements are from financially distressed companies and if market conditions are unfavorable. Research limitations/implications Limitations include the possibility of confounding events, possible bias in the identified announcements, and our focus on EAI technology only. Future research may try to better account for confounding events, identify a more comprehensive list of relevant announcements, and also look at other technologies. Practical implications Managers should not view EAI technology as a panacea for organizational problems. Financial markets mostly respond negatively to EAI announcements when the announcing company is perceived as an investment risk or the announcement is released during bear market conditions. Originality/value This study expands the existing body of knowledge on IT contribution to market value. The focus on EAI technology allows for better comparison of results and testing of hypotheses. Also new is the finding that perceived company risk as well as market conditions play an important role in the reaction to IT investment announcements.

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References

1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1970EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*1965The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets 1975THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]1969A New Product Growth for Model Consumer Durables 1991Efficient Capital Markets: II 1997TOWARDS AN ATTENTION-BASED VIEW OF THE FIRM 1988First-mover advantages

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