The Use of Impression Management Strategies to Manage Stock Market Reactions to IT Failures

Abstract

In this work we show how organizational impression management strategies can influence stock market reactions to information technology (IT) failures. We combine the resource-based view of the firm with organizational impression management strategies to analyze what strategies work with different types and causes of IT failures. We perform an event study on a sample of 214 IT failures over eight years and find that a firm's choice of organizational impression management strategy has a significant effect on a firm's market value. On average, over $212 million in market value can be saved with the correct impression management strategy. For implementation failures, we find that assertive strategies are better than defensive strategies. Conversely, we find that for operational failures, defensive strategies are superior. Furthermore, we examine failures caused by human error and discuss the impacts. This research provides new theoretical insights to the resource-based view of the firm.