Capital markets valuation and accounting performance of Most Admired Knowledge Enterprise (MAKE) award winners

a r t i c l e i n f o Keywords: Knowledge management MAKE award winners Market study Delphi method Asset pricing Capital markets Stock valuation Researchers have used the stock price reaction to firms' disclosures of investment in information technology to investigate the value of those investments. This paper extends that research to include knowledge management (KM). In particular, we test whether and how KM is valued by market participants by examining the stock market reaction and future performance of companies receiving the " Most Admired Knowledge Enterprise " (MAKE) award, which recognizes companies that excel at KM. MAKE awards are generated based on opinions gathered from experts using the Delphi method, a well-known group decision support tool. We find that MAKE winners: (1) experience positive abnormal returns around the award announcement, (2) report superior operating performance relative to their peers subsequent to the receipt of the award, (3) receive upward analyst forecast revisions following the award, (4) experience a positive upward stock price drift following the award, and (5) that the market has taken time to learn how to process and interpret information useful in valuing KM. Thus, our findings contribute to the literature by finding that market participants value KM and KM apparently positively influences accounting performance indicators. In addition, a unique feature of our study is that we investigate the market's response to information gathered using the Delphi method, an information source not previously investigated in stock price reaction literature. While there is no single accepted definition for knowledge management (KM), a typical definition is processes and systems that allow the creation, storage, transfer and application of knowledge, typically to facilitate and support decision making (e.g., Alavi and Leidner [1]). KM activities commonly include the sharing of information and best practices within the firm, identifying internal experts, and facilitating the exchange of information among employees. Both academics Nicolas [30] and practitioners Quast [34] have argued that knowledge management positively impacts the quality of decision making. Thus, it is not surprising that expenditures on knowledge management grew from $400 million in 1994 to $34 billion in 2007, and were expected to exceed $150 billion in 2012 GIA [18]. However, skeptics label KM a potential management fad (e.g., [32,38,17]). Further, most analyses of impact of KM on decision making typically have focused on internal assessment of impact on decision making and are qualitative Nicolas [30]. As a …