Look Before You Leap : Mobile App Investment and Firm Performance

With the continuous growth of mobile market, many firms are considering investing in mobile apps. Through the lens of stock market reaction, we find that on average public firms experience a negative abnormal stock return on the day when they release their first mobile app and mobile app investment does not lead to any significant abnormal stock return in the long run, which is likely because investors are discouraged by the competitive nature of mobile app market and foresee the future underperformance of the launched mobile app. Our dataset covers all U.S. public firms that released mobile apps from 2008 to 2017 on the two leading mobile app stores, Apple App Store and Google Play. To better understand our seemingly surprising results, we conduct three additional analyses. First, we explore the determinants of the short-term abnormal return and find that having a pre-announcement, being a late follower, and releasing apps on both major app stores are positively correlated with the short-term abnormal stock return. Second, we show that the stock market accurately anticipates the future performances of mobile apps, as the mobile apps of firms experiencing a negative short-term abnormal stock return tend to have fewer downloads and less active users in the long term. Third, mobile app investment on average does not have a significant effect on firms' operating performance measured by return on assets. As the first empirical study to rigorously and systematically document the impact of IT investment in the mobile domain, our findings imply that firms should act cautiously when planning to enter the mobile app market