Information technology investment by publicly listed companies is often regarded as a positive signal for the stock market. Announcements on the adoption of enterprise resource planning (ERP) systems, the strengthening of digital infrastructure, and the development of information technology (IT) are frequently assumed to immediately drive up share prices.
Dr. Singgih Wijayana, a lecturer at the Department of Accounting, Faculty of Economics and Business, Universitas Gadjah Mada (FEB UGM), explained that over the past two decades, companies worldwide have raced to invest in information technology, ranging from ERP systems and e-commerce to digital banking services.
Such investments are widely believed to improve efficiency and corporate value.
“Unfortunately, this is not always the case because Indonesia’s capital market has distinct characteristics. It is known as a thin market, where trading activity is not as intense as in developed countries, so information is not always absorbed quickly by investors,” he explained at FEB UGM on Tuesday (Jan. 6).
Presenting the results of research conducted with Professor Didi Achjari, entitled “Market Reaction to the Announcement of an Information Technology Investment: Evidence from Indonesia,” Dr. Wijayana said the study sought to examine how Indonesia’s stock market responds to information about technology investment.
The research questioned whether the market reacts quickly or takes longer.
“Similar studies have been conducted before, but they did not find significant market reactions to IT investment announcements. Limitations in observation periods and narrow event windows became gaps that this study sought to address,” he explained.
Based on research by the two FEB UGM scholars, the study examined long-term market reactions and employed methods better suited to thin markets, including risk adjustments using the Scholes-Williams and Dimson-adjusted betas.
The research analyzed 179 IT investment announcements made by publicly listed companies on the Indonesia Stock Exchange between 2001 and 2016, with stock price movements observed both around the announcement date and up to 60 days afterward to identify investor response patterns.
“The results show no significant market reaction around the technology investment announcement date. This means that investors in Indonesia do not respond immediately to such news,” he said.
Dr. Wijayana noted that investors tend to wait and observe developments in the months following the announcement. This approach allows investors to better understand the impact of information technology on company performance, as technology investments do not always produce immediate positive effects on financial results.
The study also found that market reactions tend to be stronger in banking companies, smaller firms, and companies adopting ERP for the first time.
“This indicates that industry type, business scale, and prior technological experience play important roles in shaping how the market evaluates IT investment announcements,” he explained.
Dr. Wijayana acknowledged that the findings provide insight that technology investment announcements do not automatically increase stock value. Management needs to clearly and transparently communicate the long-term business benefits of technology investments so that the market can recognize their added value.
The findings also serve as a reminder that not all technology investments deliver instant results, and the market needs time to assess whether such investments truly enhance efficiency and profitability.
“Moreover, this study shows that Indonesia’s capital market is still in the process of becoming more efficient, and investor behavior remains influenced by psychological factors as well as limitations in rational decision-making,” he added.
Reporter: FEB UGM/Kurnia Ekaptiningrum
Author: Agung Nugroho
Post-editor: Rajendra Arya
Illustration: CNBC Indonesia