Does market perception on digital transformation impact financial performance? Evidence from the US software and IT services and technology equipment sector
Mohammad Al-Shboul, Sandia AlfzariPurpose
This study examined the effect of market perceptions of digital transformation (DT) on financial performance for US firms operating in the software and IT services and technology equipment sector.
Design/methodology/approach
A panel data multivariate analysis was performed using a sample of the 46 largest US-listed firms (extracted from the S&P 500) operating in the sector, covering the period from 2013-Q1 to 2023-Q2.
Findings
The analysis showed that market perceptions of DT enhance financial performance. The information the market conveys about DT leads to favorable perceptions across market participants, which consequently enhance firms' financial performance. However, during the COVID-19 outbreak, this effect weakened, suggesting that investors emphasized macroeconomic conditions and industry-wide expectations more than information signals regarding long-term investments.
Practical implications
This study provides guidance for technology producers and service providers, as well as investors and shareholders, since DT initiatives enhance business performance by increasing operational effectiveness and potential profits. It also offers insight into understanding market perception of DT and its impact on corporate success, especially during periods of market stress.
Originality/value
This study is among the first to examine how market perception of DT affects the financial performance of US technology firms during COVID-19. It extends the literature on signaling theory by showing that market perceptions of DT can function as credible external signals of technological capability, innovation orientation and future growth potential.