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THE MORE, THE MERRIER? HOW THE NUMBER OF PARTNERS IN A STANDARD-SETTING INITIATIVE AFFECTS SHAREHOLDER'S RISK AND RETURN
Journal article   Peer reviewed

THE MORE, THE MERRIER? HOW THE NUMBER OF PARTNERS IN A STANDARD-SETTING INITIATIVE AFFECTS SHAREHOLDER'S RISK AND RETURN

Nitin Aggarwal, Qizhi Dai and Eric A. Walden
MIS quarterly, v 35(2), pp 445-462
01 Jun 2011
DOI: https://doi.org/10.2307/23044051
Featured in Collection :   UN Sustainable Development Goals @ Drexel

Abstract

Business & Economics Computer Science Computer Science, Information Systems Information Science & Library Science Management Science & Technology Social Sciences Technology
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 laced by an individual firm's shareholders. However, the market risky its investors lace 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.

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18 Record Views
34 citations in Web of Science
43 citations in Scopus

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UN Sustainable Development Goals (SDGs)

This publication has contributed to the advancement of the following goals:

#9 Industry, Innovation and Infrastructure

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Collaboration types
Domestic collaboration
Web of Science research areas
Computer Science, Information Systems
Information Science & Library Science
Management
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