Sourcing, Risk and the Financial Market

Outsourcing has become a commonly accepted alternative of strategic management. But how do stockholders rate the corporate decision to divest parts of the former business? We study the stock market reaction of outsourcing announcements of the global financial services industry, using event study methodology and multivariate cross-sectional regression analysis. We analyze a sample of 162 outsourcing transactions between 1997 and 2004 in order to investigate the drivers of excess returns to shareholders of outsourcers and insourcers in the global financial services industry. The analysis studies the impact of independent variables, the driving factors. Our findings indicate that many of these factors have significant explanatory power, indicating that capital market’s reaction to an outsourcing announcement might at least partly be forecasted. Partnering with experienced service providers significantly benefits the outsourcer. Evidence indicates that insourcers significantly benefit from large deals and transactions relating to traditional IT processes

An examination of the long-term business value of investments in information technology

In this paper, we examine the effects of investments in Information Technology (IT) on the long term business values of organizations. The regression discontinuity design is used in this research to examine eight hundred and ten IT investment announcements collected from the period 1982–2007. Our results found that press releases can affect the market value of a firm by possibly providing investors with a better idea of a firm’s current and future operations and strategy. On the other hand, these press releases also appear to attract more transient investors. The attraction of transient investors likely suggests the market believes the IT investing firm is serious about its potential for growth and expansion

Differential Market Reaction to Data Security Breaches: A Screening Perspective

This paper aims to identify breach- and firm-level characteristics that may account for the heterogenous stock market reaction to data breaches. Drawing upon the screening theory, this paper examines the possibility of three breach characteristics (breach severity, breach locus and breach controllability) and two firm attributes (CEO stock ownership, and corporate social responsibility (CSR) performance) serving as information screens to influence stock market reaction to a data breach incident. Using an archival dataset compiled from multiple sources, we examine 607 data breaches from 2004 to 2018 and find that the stock market reacts more negatively if a breach is more severe (i.e., involving more data records and financially sensitive consumer data), controllable (i.e., could have been prevented), and if the breached firm has weak corporate governance, as indicated by low CEO stock ownership. Furthermore, CSR provides an “insurance-like” protection by attenuating the negative effects of breach severity, breach controllability, and poor corporate governance on firm value. Findings of this research highlight the relevance of screening theory as a theoretical lens for examining the contextual dependence of stock market reaction to data breaches on key breach- and firm-level characteristics

Examination of Corporate Investments in Privacy: An Event Study

The primary objective of any corporate entity is generating as much wealth as possible. Investing financially in technology domains has historically been a successful strategy for generating increased corporate and shareholder wealth. However, investments in Information Technology (IT), Information Systems (IS) and Information Security (InfoSec) to specifically generate increased wealth must be implemented carefully. Shareholders reacting to corporate investments perceive financial value from individual investments. The investment’s perceived value is then reflected in the corporation’s updated stock market value. IS, IT, and InfoSec investments perceived to possess positive financial value, indicating strong potential for increased wealth, are rewarded by shareholders through increased stock market value; conversely, investments perceived to possess negative financial value, likely to decrease corporate wealth, are punished by shareholders through decreased stock market value. Previous research utilizing Event Study Methodology (ESM) determined financial impact that investments had on corporate stock market value after press release announcements identifying the investment. Based on early success across various domains, additional Event Study Research (ESR) was further conducted within IS, IT, and InfoSec. Most studies aligned into one of three categories: 1) Investments in IT, 2) Information Security Breaches, and 3) IT Outsourcing, and similarly measured changes in market value from corporate investments in related IS, IT, and InfoSec products and services. Examination of the extant body of literature identified a gap within the Privacy domain; minimal ESR examining privacy and the financial impact from corporate investments in privacy. While financial loss associated with a breach incident is identified as the motivating force driving increased corporate investments in defensive measures, “privacy” is identified as a singular construct with little concern for the associated invasion of privacy. As such, little is known about privacy, potential financial risks associated with a privacy breach, nor an understanding of why corporations are not investing in privacy. This research extends the body of literature and makes an academic contribution by: 1) using ESM to identify the financial and overall stock market implications from corporate investments in privacy, 2) identifying the economic incentives motivating corporate investments in privacy, and 3) gaining a better overall understating of corporate investments in privacy, and why corporations are not investing in privacy

The value of transformational IT investments in South Africa : an event study analysis

Word processed copy.Includes bibliographical references.This thesis aims to further the understanding of the conditions under which IT investments add value and conducts a replication of a study by Dehning, Richardson and Zmud (2003) in the context of South Africa

Wall Street’s Attitude to CEO-to-Employee Pay-Ratio: Evidence from M&As

Using merger and acquisition (M&A) announcements from 2018 to 2021 by S&P 1500 firms in the United States as a corporate event, we aim to further understand the debate surrounding within firm income inequality in executive compensation in U.S companies. We found that the M&A announcement period abnormal returns positively related to acquirer’s CEO-to-Employee Pay Ratio. However, we note that such an effect is more pronounced when the target is not a publicly traded firm. Our core findings are consistent with Optimal Contracting Theory, Shareholder Value view and Talent Assignment Hypotheses. Market perceives firms likely pay higher compensation to attract more talented CEOs, which contributes to within firm pay disparity. In other words, these findings also imply that market perceives more talented CEOs likely have stronger bargaining power to extract larger share of company’s rents, as such CEOs would likely be able to make firm value maximizing acquisitions

The Determinants of Audit Report Lag: The Mediating Effect of Auditor's Reliance in Jordan

The association between corporate governance mechanisms and the reliance decision, and the impact of such decision on the timeliness of financial reporting is the subject of increasing public and regulatory interest. This study focuses, first, on examining the relationships between the effectiveness of board and audit committee and external auditor's reliance on the internal audit work. Second, it examines the impact of the reliance decision on the audit report lag. The data are obtained using secondary-data and survey-questionnaire methods. The sample size comprises 87 companies listed in Amman Stock Exchange (ASE) for the year 2009. The internal and external auditors of these companies are surveyed with a 34% response rate. Multiple regression results reveal a significant and positive relationship between the effectiveness of the audit committee and reliance decision. In addition, audit committee meetings with external auditor and audit committee’s review of internal audit function results have also a significant and positive association with reliance decision. Findings of this study also support the positive relationship between the overall quality of internal audit function and reliance decision. Regarding the impact of reliance decision on audit report lag, a significant but negative relationship between external auditor's reliance on the work of internal audit function and audit report lag is documented. This study supports the belief that the Jordanian external auditors are aware of the importance of relying on the internal audit work and evaluating the quality of this work before making the reliance decision as required by ISA 610. However, companies in Jordan still need to improve their internal audit function and support it with the necessary resources. Further, regulators in Jordan should mandate the companies to have an effective internal audit function