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How Investors Value Industrial Policies for E-business Firms in Emerging Markets
| Content Provider | Semantic Scholar |
|---|---|
| Author | Zou, Peng Xiang, Ruiqin Li, Yijun |
| Copyright Year | 2014 |
| Abstract | ABSTRACTE-business has created new industries that have added numerous new firms to world exchanges. Moreover, industry policies are important for e-business development in emerging markets. However, extant research on a linkage between e-business and financial performance has focused mostly on the influence of firms' behavior in developed markets, and understanding is limited regarding the effects of government administration on financial outcomes of firms in emerging markets. Therefore, we investigated the impact of e-business industrial policies in these markets by examining corresponding financial market responses. Our empirical investigation included an examination of financial market responses to e-business industrial policies released in China's emerging market. Specifically, we conducted an event study to investigate the impact of released policies on stock values of e-business firms. Our empirical analysis revealed the following. First, two types of industrial policies that facilitate e-business are associated with opposite abnormal returns on the release date. Specifically, concrete positive policies produce positive abnormal returns, while positive policies that are more general produce negative abnormal returns. Second, not all firms benefit equally from e-business policies. Specifically, policy value is strengthened or weakened by research and development and advertising expenditures. Therefore, managerial implications are applicable to investors, firms, and government.Keywords: e-Business; Industrial policy; Financial value; Emerging market; Event study(ProQuest: ... denotes formulae omitted.)1. IntroductionE-business plays an important role in the new economy [Jorgenson 2001]. With the corresponding creation of new industries, numerous firms have been introduced to the various world exchanges. Many new firms have become large enough to be listed on the SP furthermore, success based on such expenditures is far from certain [Srinivasan et al. 2009]. Investors who are motivated by cash flow expectations-in particular, the prospects of accelerating future cash flows and reducing associated risks [Srivastava, Shervani, and Fahey 1998]-must consider both the (expected) benefits and the downsides (technology complexity and benefit uncertainty). Therefore, e-business firms would be better off not only pursuing the traditional objective of increasing market share or corporate growth but also maximizing shareholder wealth within the overall framework of a country's industrial policy [Singh 1999, 2000]. Moreover, understanding the financial market response to e-business industrial policies is important because a firm's financial health is not only the ultimate measure for the success or failure of any strategic initiatives [Luo and Bhattacharya 2006] but also one of the most important measures of public policy effectiveness [Schwert 1981].E-business in developed countries is growing continuously and it has grown in emerging markets as well. For example, as the Chinese government presented in its "Decision of the State Council on Accelerating the Fostering and Development of Strategic Emerging Industries," e-business is one of the most important industries in China because of its contribution to the national economy [Chao et al 2012]. E-business firms are growing rapidly in China's capital market; their average rate of growth in terms of total stock market value is over 100% per year [www.Sohu.com 2012]. However, emerging markets have certain characteristics that create a distinctive environment for e-businesses. First, the "visible hand" of the government is more powerful in emerging economies than in mature markets. In mature markets such as the U.S., the stock market and the venture capital market provide firms with cheaper external sources [Allen, Chui, and Maddaloni 2004]. … |
| Starting Page | 104 |
| Ending Page | 104 |
| Page Count | 1 |
| File Format | PDF HTM / HTML |
| Volume Number | 15 |
| Alternate Webpage(s) | http://www.jecr.org/sites/default/files/Paper2.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
