Application of information technology to gain a competitive advantage is well known and often used by business firms in developed countries. A fairly recent technological development is use of the Internet to provide corporate financial information, that is, Internet financial reporting. The research question posited by this study is: Do investors value emerging market firms that attempt to reduce information asymmetry by using information technology? This study uses the efficient market hypothesis to test the effects of two economic events on the market returns of emerging markets firms that engage in Internet financial reporting. At the macro-economic level, the event date is defined as the date the country deregulated the telecommunications industry granting commercial access to Internet providers. At the micro-economic level, the event date is based on the firm's announcement of the launching of its website. This study offers empirical evidence of the longitudinal effects of Internet technology i.e., timely dissemination of financial information, on emerging markets. The analysis reveals positive dispersions in market price and volume around the event dates. Market performance of securities listed on emerging market stock exchanges does improve after commercialization of the Internet.
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The use of information technology for competitive advantage is well known and often applied by business firms. Using stock data for firms listed on the emerging market stock exchanges in Brazil, India, Indonesia, Russia, and South Africa, this study provides empirical evidence as to the positive dispersions in price and volume regarding the economic event of investments in the Internet. We show that in spite of operating in highly volatile capital markets, some emerging market firms attempt to distinguish themselves in the 1990s by investing in Internet technology. Our study contributes to prior disclosure literature by providing evidence regarding the integrity and speed of adjustment (efficiency) of emerging markets to the new (value relevant) qualitative information that is released electronically by public firms.
Internet financial reporting refers to the use of a company's website to distribute information about the financial performance of the corporations. Use of Internet financial reporting is effectually a method of marketing a company to shareholders and investors (Poon et al. 2003). According to Wagenhofer (2003), Internet financial reporting has at least two major economic effects. First, the Internet alters information processing costs and with it the demand and supply of financial information in capital markets. Second, Internet financial reporting creates a demand for standardization; this led to development of XBRL (Wagenhofer 2003).
Brown and Warner (1980) state that event studies provide a direct test of market efficiency; their assumptions are that the event will be either reflected in traded asset prices or in trading volume, if the corporate news announcement is deemed value-relevant to their investors. The authors that a major concern in event studies is that they tend to assess the extent to which security prices perform around the time of the economic event as abnormal. They also state that nonzero abnormal security returns that persist after a particular type of event are inconsistent with the efficient market hypothesis that security prices adjust quickly in order to fully reflect new information (Brown and Warner 1980).
In this study, we analyze two economic events to assess the impact of information technology in Brazil, India, Indonesia, Russia, and South Africa. The first event regards the effect of the Internet at the macro-economic level. The purpose of the first event analysis is to measure the total market response to the introduction of a new communications medium that resulted from reforms made to the telecommunications sector. …