Publications
Publications
- Forthcoming
- Review of Accounting Studies
Going Digital: Implications for Firm Value and Performance
By: Wilbur Chen and Suraj Srinivasan
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 (forthcoming). (Pre-published online March 11, 2023.)