An Analysis of Events in Online Game Industry and Stock Price Reactions

The online game industry is an emerging entertainment software industry. It is successful and fast growing. Prior studies have identified characteristics of this industry that are distinctive from traditional entertainment industries. Currently one of the most important business challenges this industry faces is securing investments for development or evaluation of development projects. An online game development project requires large-scale investments during production and initial marketing stage. The reason for this challenge lies in difficulties in forecasting future market success of online games. Hence, capital market is desperately seeking good signals of quality of projects. We maintain that stock price reaction is one of signals generated by market evaluation. We analyze the relationship between events that occurred in the development process, such as the game content rating information or public announcements, and stock market prices of the online game companies. We examine the information of 10 online game companies that are listed on Korean stock markets between the periods of 2002 to 2009. In this study we adopt event study methodology, which is widely used in finance and MIS literature. Our results show positive and significant correlation between the game rating events and stock price reaction. We show the existence of direct network externalities, positive stock price reaction of casual games, and companies that have development organizations or adopt vertical integration model are preferred in the market. Finally we suggest implications that may improve the value of the online game industry.