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Does the market reward digitalization efforts? Evidence from securities analysts’ investment recommendations

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The size and pace of the digital transformation make investments in digitalization for firms of all sizes and in all industries inevitable. Besides the potential tremendous advantages arising from the application and consideration of newly available technologies, these investments are inherently associated with a high level of uncertainty. While costs being substantial, the benefits might not accrue within the near future or at all. The technological change literature has explored the reactions of incumbent firms and their ability to adapt during times of technological transformation; however, very few studies within this stream have considered external factors, such as the potential pressure arising from securities analysts, who fulfill an information brokerage function for investors. Previous findings portray analysts as opponents of cash consuming investments, such as firms’ adaptations to technological change. We enlarge this view by arguing that analysts are biased towards status quo-preserving technologies only until external pressure occurs, which is impactful enough to change their inertial assessments. We hence hypothesize that in the digital age, analysts’ reactions to firms’ digitalization efforts become increasingly less unfavorable. Since no industry is impervious to these changes, we use a large sample of publicly traded German firms over 12 years and find empirical evidence for our hypotheses. Ultimately, analysts even reward firms that proactively responded to these challenges. This work contributes to research on analysts, technological change, and firms’ strategic choices. Our study offers a novel approach to measure firms’ digitalization efforts as well as insights for managers who react upon new technologies.

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Fig. 1
Fig. 2


  1. 1.

    In line with other studies on analysts (see Brauer and Wiersema, 2018 for an overview), we focus on sell-side analysts. We furthermore use the term analysts as synonym for securities analysts.

  2. 2.

    Schemas “represent knowledge about a concept or type of stimulus, including its attributes and the relations among those attributes” (Fiske and Taylor 1991, p 141).

  3. 3.

    Legitimacy may be defined as “a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman 1995, p 574).

  4. 4.

    This view assumes that analysts are not subject to the influence of cognitive biases and social context (Brauer and Wiersema, 2018). This perspective, however, has been challenged by work in behavioral finance (see e.g., Beunza and Garud 2007).

  5. 5.

    There is currently no commonly accepted definition for digitalization and the terms “digitalization”, “digitization” and “digital transformation” are often used interchangeably (Schallmo et al. 2017). Digitization can be described as “the process of changing from analog to digital form”, whereas digitalization as “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities” (Gartner 2018).

  6. 6.

    We thank the two anonymous reviewers for proposing these additional tests.


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Appendix 1

See Table 3.

Table 3 Digitalization dictionary in alphabetic order

Appendix 2

See Table 4.

Table 4 Post-hoc analysis

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Hossnofsky, V., Junge, S. Does the market reward digitalization efforts? Evidence from securities analysts’ investment recommendations. J Bus Econ 89, 965–994 (2019). https://doi.org/10.1007/s11573-019-00949-y

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  • Digitalization
  • Technological change
  • Societal shifts
  • Securities analysts
  • Strategic choices

JEL classification

  • O33
  • G24
  • C33