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Accounting Department's lecture

Topic:     Reducing Capital Market Anomaly: The Role of Information Technology Using an Information Uncertainty Lens

Speaker:Ning Jia

Time:      14:00,Dec.28,2017

Place:      Room1008,Mingde Bussiness Building

Abstract:

We investigate how firms use IT implementation to mitigate an anomaly in capital markets: investors underreacting to new public information. Theory of information uncertainty (IU) suggests that the anomaly is amplified with IU; that is, to ambiguity in information about firm value. We theorize that a firm’s IT in general—and enterprise systems (ES) in particular—can mitigate IU, thus reducing the IU-induced underreaction anomaly. Based on a difference-in-differences analysis of a sample of 572 ES implementations, our main finding is that ES implementation does reduce IU-induced underreaction anomaly. This is achieved through a reduction in the firm’s fundamentals volatility and an improvement in information quality. We also find that firms with greater IT capability are better positioned to realize the anomaly-reducing benefits of ES implementation, and that ES’s anomaly-reducing effect is most pronounced when high levels of both functional and operational modules are implemented. We obtain remarkably consistent results when using alternate empirical design, sample, and measure of a firm’s IT. Such IT impacts are economically highly consequential as they improve capital market efficiency.