The Value Relevance of Announcements of Transformational Information Technology Investments1

Abstract

In this paper, we examine the influence of IT strategic role to extend the findings of Im et al. (2001), Chatterjee et al. (2002) and Dos Santos et al. (1993). Specifically, we demonstrate that IT strategic role can explain how IT investments in each of the IT strategic roles might affect the firm’s competitive position and ultimately firm value. We find positive, abnormal returns to announcements of IT investments by firms making transformative IT investments, and with membership in industries with transform IT strategic roles. The results of previous research are not found to be significant when IT strategic role is included as an explanatory variable. These results provide support for the value of capturing the IT strategic role of a firm’s IT-related competitive maneuvering in studies striving to understand the conditions under which IT investments are likely to produce out-of-the-ordinary, positive returns.