Information Systems and Stock Return Volatility

Measuring Information Systems (IS) value has been constantly attracting much attention and debate within the IS research community. Since information systems effects are often difficult to quantify, traditional payoff evaluation methods often yield conflicting results. In this paper we suggest that some information systems can be evaluated on the basis of their effect on stock return volatility. Systems which facilitate information sharing and decision-making can improve the quality of company information to stakeholders, thus reducing surprise levels in financial markets. Specifically, these systems can lead to more consistent and predictable company performance. Hence, we hypothesize that information systems can help to reduce a company’s stock return volatility. To test this hypothesis, we have conducted an empirical analysis on a sample of firms that have deployed a Business Intelligence (BI) system. The results indicate a significant reduction in stock return volatility after BI deployment.