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  • June 2024
  • Article
  • Review of Accounting Studies

Going Digital: Implications for Firm Value and Performance

By: Wilbur Chen and Suraj Srinivasan
  • Format:Print
  • | Pages:47
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Abstract

We examine firm value and performance implications of the growing trend of non-technology companies engaging in digital transformation. We measure digital activities in firms based on the disclosure of digital words in the business description section of 10-Ks. Digital activities are associated with a market-to-book ratio 8–26% higher than industry peers, and only 25% of the differences in market-to-book is explained by accounting capitalization restrictions. To control for selection bias, we implement lagged dependent variable and IV regressions, and we find that our market-to-book findings are robust to these specifications. Portfolios formed on digital activity disclosure earn a DGTW-adjusted return of 30% over a 3-year horizon and a monthly alpha of 44-basis-points. We only find weak evidence of near-term, positive improvements in fundamental performance, with evidence of productivity increases, but declines in sales growth conditional on digital activities.

Keywords

Digital Technologies; Valuation; Return Predictability; Financial Statement Analysis; Performance; Value; Information Technology

Citation

Chen, Wilbur, and Suraj Srinivasan. "Going Digital: Implications for Firm Value and Performance." Review of Accounting Studies 29, no. 2 (June 2024): 1619–1665.
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About The Author

Suraj Srinivasan

Accounting and Management
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More from the Authors
  • Critical Choices in Designing a Board: An Overview By: Suraj Srinivasan and Lynn S. Paine
  • What Board-level Control Mechanisms Changed in Banks Following the 2008 Financial Crisis? A Descriptive Study By: Shelly Li, Shivram Rajgopal, Suraj Srinivasan and Yu Ting Forester Wong
  • Windsurf and the AI Code Assistant Market By: Suraj Srinivasan, Sudhanshu Nath Mishra and Radhika Kak
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