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Journal of the Academy of Marketing Science
Published in: Journal of the Academy of Marketing Science 3/2022

21-01-2022 | Original Empirical Research

Shareholder wealth implications of software firms’ transition to cloud computing: a marketing perspective

Authors: Mehdi Nezami, Kapil R. Tuli, Shantanu Dutta

Published in: Journal of the Academy of Marketing Science | Issue 3/2022

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Abstract

Moving into cloud computing represents a major marketing shift because it replaces on-premises offerings requiring large, up-front payments with hosted computing resources made available on-demand on a pay-per-use pricing scheme. However, little is known about the effect of this shift on cloud vendors’ financial performance. This study draws on a longitudinal data set of 435 publicly listed business-to-business (B2B) firms within the computer software and services industries to investigate, from the vendors’ perspective, the shareholder wealth effect of transitioning to the cloud. Using a value relevance model, we find that an unanticipated increase in the cloud ratio (i.e., the share of a firm’s revenues from cloud computing) has a positive and significant effect on excess stock returns; and it has a negative and significant effect on idiosyncratic risk. Yet these effects vary across market structures and firms. In particular, unanticipated increases in market maturity intensify the positive effect of moving into the cloud on excess stock returns. Further, unexpected increases in advertising intensity strengthen the negative effect of shifting to the cloud on idiosyncratic risk.
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Appendix
Available only for authorised users
Footnotes
2
A stock return response model establishes whether the new information contained in a variable (as captured by its unexpected changes) is associated with long-term changes in stock prices (for applications, see, e.g., Bharadwaj et al., 2011; Frennea et al., 2019; Mishra & Modi, 2016)
 
3
Publicly-traded B2B firms that operate in the computer software and services industries invest, on average, about 3% of their revenues in advertising.
 
6
For example, companies such as Workday (2018) and ACI Worldwide, Inc (2018) indicate in their annual reports that their cloud contracts typically have a term of three years or longer and are often non-cancelable.
 
7
The Ad$pender database covers about 74% of the observations in our sample.
 
8
We found similar results after limiting our sample to firms with at least 30, 60, or 120 daily stock return observations in a given year. The results are available upon request.
 
9
We thank an anonymous reviewer for raising this point.
 
11
We thank an anonymous reviewer for raising this point.
 
12
We thank an anonymous reviewer for raising this point.
 
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Metadata
Title
Shareholder wealth implications of software firms’ transition to cloud computing: a marketing perspective
Authors
Mehdi Nezami
Kapil R. Tuli
Shantanu Dutta
Publication date
21-01-2022
Publisher
Springer US
Published in
Journal of the Academy of Marketing Science / Issue 3/2022
Print ISSN: 0092-0703
Electronic ISSN: 1552-7824
DOI
https://doi.org/10.1007/s11747-021-00818-7

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