Equity Market Views and Digital Technology Investment in Non-IT Firms

Abstract

Motivated by the increasing investment in digital technologies, such as analytics, big data and artificial intelligence technologies, in non-IT firms, this dissertation studies the role that equity markets play in the digital investment in these firms. In the first chapter, I examine the market valuations of non-IT companies that disclose digital-related activities in the 10-K annual report filings. My findings show that firms that disclose digital-related activities exhibit significantly higher valuations relative to peers and exhibit significantly positive long-run returns. In the second chapter, I use digital-related questions on earnings conference calls to study the views and assessments of key market intermediaries, financial analysts, on digital technology investment in non-IT firms. I find that financial analysts' views and sentiment on digital investment are aligned with factors that predict greater success in digital technology investment. Moreover, I find evidence that their views are linked with more future investment in advanced digital technologies -- AI technologies, and cross-sectional analyses suggest that analysts play an active role in encouraging firms to invest more in these technologies. In the third chapter, I examine the relationship between various capital market forces, such as short-term market incentives, and non-IT firms' investments in digital technologies. Using vesting equity as a proxy for short-term market incentives, I find that digital technology investment as measured by the proportion of IT workers and AI worker vacancies is not significantly associated with these incentives. On the other hand, digital technology investment as measured by technology acquisitions is negatively associated with vesting equity.