Information rules: a strategic guide to the network economy
Information rules: a strategic guide to the network economy
Communications of the ACM
Information Systems Research
The Impact of E-Commerce Announcements on the Market Value of Firms
Information Systems Research
Reexamining the Value Relevance of E-Commerce Initiatives
Journal of Management Information Systems
Journal of Management Information Systems
Do Markets Prefer Open or Proprietary Standards for XML Standardization? An Event Study
International Journal of Electronic Commerce
Market Reactions to Information Security Breach Announcements: An Empirical Analysis
International Journal of Electronic Commerce
Information Systems Research
The emergence of the compact disc
IEEE Communications Magazine
Risk and return of IT investment: evidence from SCM and CRM announcements
International Journal of Networking and Virtual Organisations
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Firms often collaborate with other firms to set information technology standards in order to decrease each firm's individual risk. But does this work? We propose that, in a capital market setting, establishing standards in a group does not decrease the total risk faced by an individual firm's shareholders. However, the market risks its investors face decrease and idiosyncratic risks increase, changing the risk profiles of the group members. We collected data on standard-setting events from 1996 to 2005. In our dataset, a firm obtained a 4.07 percent, three-day cumulative risk-adjusted return on stock price when engaging in a standard-setting initiative, after controlling event year, firm size, and group size. More importantly, we found that an increase in the number of firms in the group decreased the risk-adjusted abnormal return and the market risk (as measured by beta) of each firm, but increased the idiosyncratic risk (as measured by the variance of firm returns). Our findings suggest that firms electing to participate in a large standardization group obtain a reduction in abnormal returns on stocks on the days of the standard-setting events. They also expect to reduce market risks but increase idiosyncratic risks after the standard-setting events, as compared to firms choosing to participate in a smaller group or attempting to standardize their products unilaterally. This study contributes to the literature on IT standards and standardization, and expands our understanding of the implications of standardization strategy on shareholder risks.