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Volume 9 Issue 1 April 2006
Stock Price Reaction to Investments in Information Technology: the Relevance of Cost Management Systems
Narcyz Roztocki1 and Heinz Roland Weistroffer2
1State University of New York at New Paltz, USA
2Virginia Commonwealth University, Richmond, USA
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The identification of conditions and factors under which the investments in Information Technology (IT) can be expected to yield tangible returns is the subject of many productivity studies. Event study methodology, which examines the reaction in the stock price to announcements of different types of IT investments, is one approach to this kind of research. In the research presented in this paper, we use event study methodology to investigate the effect of cost management systems on payoffs from IT investments. The motivation for our research is based on the assumption that companies possessing reliable cost management systems, such as Activity-Based Costing (ABC), are less likely to make expensive mistakes when investing in IT. Furthermore, the companies that use ABC and thus know the costs of their operations, are better able to single out those IT projects, which positively impact the bottom line and competitiveness. In our study, we use a sample of three companies that are adopters of ABC, to examine the impact of 81 IT investment announcements on stock prices.
Keywords: Activity-based costing, cost management systems, event study methodology, information technology productivity paradox
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