The first section offers a discussion on the

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The first section offers a discussion on the literature related to the financial performance of information technology companies. The next section offers background information relating to the six information technology eras applied to this study. The third section discusses the computer network and information technology services industry and the five specific companies that are the focus of this study. The fourth section presents data and methodology. The fifth section puts forth results from the application of a nonparametric technique to compare stock market returns across different information technology eras for the six companies. The final section offers concluding comments. REVIEW OF THE LITERATURE Academic research identifying structural economic changes that influence stock prices mostly focuses on major crashes in the history of financial markets (Higgins & Osler, 1997; Allen & Gale, 2000; Cocca, 2005). Although a relatively new topic for the information technology sector, there are numerous studies in finance theory that focus on the development of speculative bubbles and stock market volatility (Camerer, 1989; Allen & Gale, 2000). Stock market volatility is explained by various approaches, which differ in essence according to assumptions made with regard to market efficiency (Sornette & Malevergne, 2001). Stock market performance of information technology companies reveals the sector has greater volatility than most other economic sectors (Demers & Lev, 2001; Ofek & Richardson, 2003; Kamssu, Reithel, & Ziegelmayer, 2003). Terry, Macy, and Abdullat (2010) find a correlation of stock prices for vertically integrated technology companies in a down market but bull markets are not highly correlated within the vertically integrated firms. Cocca (2005) puts forth one of the few studies exploring potential reasons for the stock market volatility of information technology companies. The study uses a broad media database to analyze the informational and media environment surrounding the market highs for technology stocks and explores potential trigger events that could cause an Internet bubble to burst. Two key informational event triggers are public awareness of the human genome research results and the publication of a study by Barron’s magazine about Internet companies’ burn rates.
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Page 85 Academy of Accounting and Financial Studies Journal, Volume 15, Number 4, 2011 Cocca (2005) concludes diffusion data of the informational events show a long-term impact of the Barron’s study on media, financial analyst and consequently investor focus. Researchers are becoming more and more interested in studies relating IT investment and firm performance (Im, Dow, & Grover, 2001). The studies have produced a wide range of performance results that are negative or not conclusive (Tam, 1998), mixed (Avison, Eardley, & Powell, 1998; Ranganathan & Samarah, 2001), or positive a positive and significant relationship between IT investment and firm financial performance (Im, Dow, & Grover, 2001). Kamssu, Reithel, & Ziegelmayer (2003) explore the impact of information technology and stock returns.
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  • Spring '12
  • Kushal Kanwar
  • Dot-com bubble, Stock market bubble, Financial Studies Journal

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