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Wealth effects of firm's strategic technology investments: evidence from Ethereum blockchain

Wealth effects of firm's strategic technology investments: evidence from Ethereum blockchain Ethereum-based blockchain technology (EBT) affords members of the Enterprise Ethereum Alliance (EEA) a market advantage in deploying blockchain within their organizations, including cybersecurity and operational benefits, that leads firms to strategically invest in this nascent technology. However, the impact of such strategic investments in EBT has yet to be explored in the context of its relationship to firm value. Therefore, this study explores EBT-specific firm-level characteristics that result in a stock market reaction to announcements of strategic investments.Design/methodology/approachThe authors use the event study methodology, strategic investment literature and signaling theory as contextualizing frameworks for their study. Additionally, the authors explore a new method for examining technology investments as a strategic counter to cybersecurity threats.FindingsFirms that signal to the market their strong commitment to their strategic investment by developing an EBT proof of concept see significantly higher market returns. Firms that have had prior cybersecurity incidents are rewarded by the market for strategically investing in EBT, and when firms with large undistributed free cash flows utilize this cash for strategic EBT investment, the market is more likely to reward these firms, indicating the market views EBT investment positively in these circumstances.Originality/valueThe results of this study provide new evidence of the value impact of EBT for firms that suffered cybersecurity events in the past. The authors provide empirical evidence of firm-level characteristics that investors use to discern whether a strategic investment in EBT will drive organizational value. Likewise, the authors demonstrate how signaling affects investor perceptions of strategic information technology (IT) investments in EBT. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Internet Research Emerald Publishing

Wealth effects of firm's strategic technology investments: evidence from Ethereum blockchain

Smith, Kane; Gupta, Manu; Prakash, Puneet; Rangan, Nanda
Internet Research , Volume 34 (5): 25 – Sep 30, 2024
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References (70)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1066-2243
DOI
10.1108/intr-08-2022-0591
Publisher site
See Article on Publisher Site

Abstract

Ethereum-based blockchain technology (EBT) affords members of the Enterprise Ethereum Alliance (EEA) a market advantage in deploying blockchain within their organizations, including cybersecurity and operational benefits, that leads firms to strategically invest in this nascent technology. However, the impact of such strategic investments in EBT has yet to be explored in the context of its relationship to firm value. Therefore, this study explores EBT-specific firm-level characteristics that result in a stock market reaction to announcements of strategic investments.Design/methodology/approachThe authors use the event study methodology, strategic investment literature and signaling theory as contextualizing frameworks for their study. Additionally, the authors explore a new method for examining technology investments as a strategic counter to cybersecurity threats.FindingsFirms that signal to the market their strong commitment to their strategic investment by developing an EBT proof of concept see significantly higher market returns. Firms that have had prior cybersecurity incidents are rewarded by the market for strategically investing in EBT, and when firms with large undistributed free cash flows utilize this cash for strategic EBT investment, the market is more likely to reward these firms, indicating the market views EBT investment positively in these circumstances.Originality/valueThe results of this study provide new evidence of the value impact of EBT for firms that suffered cybersecurity events in the past. The authors provide empirical evidence of firm-level characteristics that investors use to discern whether a strategic investment in EBT will drive organizational value. Likewise, the authors demonstrate how signaling affects investor perceptions of strategic information technology (IT) investments in EBT.

Journal

Internet Research – Emerald Publishing

Published: Sep 30, 2024

Keywords: Ethereum; Firm value; Strategic investments; Market signaling; Blockchain cybersecurity

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