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Impact of e-Business initiatives on firm value - Annotated Bibliography Example

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The scholars point out that though more and more companies are entering into e-business, it is still unclear as to whether these companies actually profit from the said…
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Impact of e-Business initiatives on firm value
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Impact of e-Business Initiatives on Firm Value: Article Review Impact of e-Business Initiatives on Firm Value: Article Review
The work by Lee, Cho, and Lee (2002) tried to answer the ambiguity existing in the e-business world. The scholars point out that though more and more companies are entering into e-business, it is still unclear as to whether these companies actually profit from the said initiative. In order to answer this query, the scholars look into the cumulative abnormal returns for 782 e-businesses from the Korean capital markets and reach the conclusion that ‘e-business potential’ results in an increase in firm value (Lee, Cho, and Lee, 2002).
The first finding in the study is that capital markets show a positive response when firms come up with a e-business initiative. The study reveals that the cumulative abnormal return for such initiatives ranges from 3.5% to 4.74% in the first five days. Another significant finding is that the abnormal returns are higher in the e-business initiatives of business-to-consumer firms than that of business-to-business firms. The explanation for this claim is found in the ‘firm size effect’. It is found that higher abnormal returns are created in small-sized firms. As business-to-business firms are generally bigger than business-to-customer firms, it is claimed that the latter will gain more abnormal returns in the e-business initiatives.
Thus, putting an end to the long ambiguity regarding the profitability of e-business initiatives, the study came up with the finding that it is highly beneficial to the firms because it offers future benefits to the firms in the form of increased market values. The reason, according to the scholars, is that such aggressive steps are often considered as futuristic by stakeholders and other public. Thus, such firms escape the usual bandwagon effect.
Admittedly, there were previous studies which proved that e-business initiatives positively affect the value of firms. However, the present study stands apart for showing the various effects of e-business initiatives based on the nature of the initiative and the nature of the business. The strength of the study lies in the fact that it investigates the issue in two different capital markets; namely KSE and KOSDAQ. However, there are some findings which contradict the findings in American market. For example, while the e-business expansion of an established e-business company makes more positive effect than the e-business initiative of a non-internet firm in the U.S, the opposite is true in Korea. Similarly, though the study hypothesized that the abnormal returns are linked to the layer to which the e-business form belongs, it could not prove the same in KOSDAQ –listed firms.
Thus, the study poses certain challenges for future research in the fact that it has found some differences between the U.S and Korean market in the way e-business initiatives are received by the public and how firms profit. The study seems limited in the fact that it fails to provide an explanation for the same. Moreover, it has failed to explain why the layer does affect abnormal returns in KSE but not in KOSDAQ. However, the study is rather groundbreaking in the fact that it has further elaborated the matter of e-business initiative profitability showing that factors like the nature of the firm, its layer, and the size of the firm all have some effect on the way the e-business initiative will affect the firm value.
References
Lee, H. G. Cho, D. H & Lee, S. C. (2002). Impact of e-Business initiatives on firm value. Electronic Commerce Research and Applications 1: 41-56. Elsevier Science B.V. Read More
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