B2B eMarketplace Announcements and Shareholder Wealth

12 The advent of the Internet as an instrument for business commerce has fundamentally altered the economy by ushering in increased efficiencies and more transparent markets. Since businesses started conducting Internet transactions in 1995, the growth has been impressive. Forrester Research estimates that worldwide electronic commerce (e-commerce) revenues were about $650 billion in 2000 and projects they will grow to $6.8 trillion by 2004. The greatest impact is in the businessto-business (B2B) sector, where new supplychain models within electronic marketplaces (eMarketplaces) enable companies to significantly lower procurement costs and increase operating efficiencies. B2B eMarketplaces streamline the supply chain by making better use of more information. The time it takes to match buyers and sellers can be radically reduced, precautionary inventory levels can be lowered, and the range of potential suppliers and distribution outlets can be expanded as geographic boundaries disappear. Projections of online B2B revenues differ vastly, primarily because defining what counts and how to count it varies widely. But despite these differences, forecasters agree that online B2B trade will grow substantially. B2B e-commerce is generally believed to account for about 80 to 90 percent of total e-commerce today. Forecasts typically project U.S. online B2B revenues of about $2 trillion by 2003, up from roughly $336 billion in 2000. B2B e-commerce is expected to impact the U.S. economy significantly. Brookes and Wahhaj (2000) argue that the rapid growth of B2B e-commerce will have an economic impact over and above that of the normal process of innovation and productivity growth. They suggest that as a result of B2B e-commerce, annual GDP growth in the large industrialized countries should rise an average 0.25 percent for the next ten years—with the level of GDP eventually 5 percent higher than it would otherwise have been. Brookes and Wahhaj conclude that the dominant long-run effect of B2B e-commerce will be on output and equity markets, rather than on inflation and bond markets. Investors should respond favorably to announcements of new B2B e-commerce initiatives, as long as they believe these moves will ultimately result in higher profits and increased productivity without fueling inflation. We examine the potential impact of B2B e-commerce initiatives on the New Economy paradigm using the efficient markets hypothesis (Fama et al. 1969), which implies stock prices reflect all B2B eMarketplace Announcements and Shareholder Wealth