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The redesign of a Web presence can be classified as both an IT Investment and an e-commerce initiative. Although the empirical literature provides evidence that financial markets are sensitive to e-commerce announcements, it is still unknown what types of announcements affect the value of firms. We use the event study methodology on a sample of Web site redesigns from 1995 to 1999 to investigate the types of commercial organizations that announce changes to their Web presence, and to study whether such redesign initiatives affect the value of publicly traded firms. Our findings indicate that, on average, refining a Web presence does not produce significant firm valuation adjustments. However, cross-sectional analyses reveal that Web site redesign increases the value of service companies.

INTRODUCTION

Anecdotal evidence suggests that Web site redesign can have a significant impact on the value of a firm. For example, in September 2000, shares of NBCi (NBC Internet) increased more than 20% after the company unveiled its redesigned site (USA Today, 2000). However, refining a Web presence has not always been a success. For instance, the online magazine Salon.com was forced to pull back a site redesign that generated numerous complaints from its users (New York Times, 2000). Despite these and other examples, we are unaware of any systematic study of the valuation impact of Web site changes in commercial organizations. Ideally, an updated Web presence should improve the firm's ability to attract customers and to increase its online revenues, and hence augment firm value. However, a redesigned site may also hinder the firm's online performance. This news may be met with unfavorable investor reactions and thus decrease the value of the firm.

As an organizational activity, the redesign of a Web presence can be classified as an information technology (IT) investment and an e-commerce project. Although recent studies provide empirical evidence indicating that financial markets may be sensitive to the announcement of these initiatives via press releases, it is not known which types of announcements affect the value of firms. This study contributes to this body of literature by examining a particular type of e-commerce announcement: Web presence redesign. Our main research question asks whether refining a Web presence affects the market value of firms. We also investigate whether the market response is different depending upon the type of firm making the announcement and whether the nature (content) of the announcement also affects the direction and magnitude of the reaction.

This article proceeds as follows: The next section reviews relevant literature in e-commerce and IT investments and develops our hypotheses. Then we describe the event study methodology. Next, we detail our research design, and present our results. Then we discuss the limitations and highlight the implications of this study. Finally, we offer our conclusions.

LITERATURE REVIEW AND HYPOTHESES

The emergence of the Internet as a commercial channel has opened new business possibilities for organizations. Traditional brick-and-mortar firms have taken advantage of the new medium and have extended their operations to cyberspace. At the same time, a new breed of pure-play Internet firms or "dot-coms," which conduct most or all of their business activities through the Internet, have joined the economy. For both types of organizations, updating their Web sites can be a crucial activity for the viability of their online operations. However, the improvement of a Web presence is likely to be especially critical for pure-Internet firms, because the site is their only interface with customers.

Palmer and Griffith (1998) suggest that the design of a Web presence is the result of the interaction between technical choices and marketing/strategic decisions. Therefore, any change in the technological environment (i.e., evolution of Web technologies) or any shift in the e-commerce strategy of the firm requires a redesign in order to adapt the site to the new conditions. New technological possibilities or changes in the strategic direction of the firm's online operations usually result in the incorporation of new e-commerce features (functionality).

Aside from these strategically or technologically motivated changes, the redesign of a Web presence is also necessary to improve the ease of use (usability) of the site. Usability-based redesigns are due to the need to expand content to accommodate an increasing user base, to include new features to facilitate navigation and access to information, or to change the appearance of the site in favor of a more pleasant and efficient layout (Guenther, 2000). The goal of a Web presence refinement is to produce a better fit between the firm's objectives and its Web presence, or the site and its visitors, or to make better use of the technology that is available. Since changes in these three fronts are constant, Web site redesign is an ongoing task.

Companies often announce the redesign of a site via press release to encourage customers' visits and to inform different audiences about changes in their Web presences. According to signaling theory (Eliashberg & Robertson, 1988; Heil & Robertson, 1991; Moore, 1992), firms send messages to their constituents (buyers, competitors, employees, investors, industry analysts, etc.) regarding various projects and initiatives. The objective of such announcements is to influence the attitudes and actions of the different targeted audiences (Calantone & Schatzel, 2000). Using press releases, firms alert market participants about particular investments, projects, managerial changes and other issues that are likely to affect firm performance. In turn, financial markets adjust the value of the firm in response to the new information.

For publicly traded firms, the value of redesigning a Web presence can be measured by the investors' reaction to such announcements. Web site redesign may increase firm value if investors perceive that the changes made to a Web presence improve the firm's ability to attract customers or generate online sales. Conversely, if investors believe that those changes impair the online performance of the organization, firm value is likely to decrease. It is also possible that a redesign announcement has no material effect on firm value. However, when news about the refinement of a Web presence significantly impacts the value of the firm, the success (or failure) of the redesign can be measured by the increase (or decrease) in firm value.

The emerging empirical literature provides evidence that financial markets are sensitive to the announcement of e-commerce initiatives via press releases. For example, Benbunan-Fich and Fich (2004) find positive stock price reactions on the announcement of Web traffic milestones during the late 1990s. Similarly, Cooper, Dimitrov and Rau (2000) document a favorable reaction to the announcement of corporate name changes to Internet-related ("dot-com" or "dot-net") names. Subramani and Waiden (2001) report significant stock price increases for 251 e-commerce announcements about new business-to-consumer initiatives during the last quarter of 1998. However, since a classification of announcements is not offered in their study, the magnitude of the reaction for each type of initiative is not known.

Disclosures of Web site redesign initiatives belong to the general category of e-commerce announcements for which recent empirical literature has found positive market reactions. Moreover, the refinement of a Web presence indicates its evolution with the incorporation of advanced technological features, new e-commerce strategies or better understanding of users' needs and preferences. This signal of positive change should trigger a favorable market reaction. Thus, we hypothesize that:

H1: The announcement of a Web site redesign will increase firm value.

In the early days of the Internet as a commercial medium, little was known about how to design Web sites to maximize profits (Hoffman, Novak, & Chatterjee, 1996). Since then, studies find that design features affect consumers' reactions to the site (Jarvenpaa & Todd, 1997), Web site traffic (Goodwin & Marquis, 2000; Lohse & Spiller, 1998), purchase behavior (Liang & Lai, 2002), customer loyalty (Koufaris, Kambil, & LaBarbera, 2001) and sales (Lohse & Spiller, 1998). Consequently, if a Web presence redesign alters key design features, it is also likely to produce significant changes in some of these indicators, which in turn may affect firm value.

From the designers' viewpoint, Web site changes are based on the premise that a refined Web presence improves the firm's online performance. Therefore, Web site redesign decisions are expected to have a favorable effect on traffic, sales or consumer perceptions. However, the success of a redesign effort may not be immediate because it depends largely upon the users' reactions to the new site and their subsequent behavior. Hence, financial markets may not be able to immediately assess the value of a redesign effort in the absence of other indicators of performance, such as increased Web site traffic, better customer satisfaction or more online sales.

Changes to a Web presence are more critical for pure-Internet firms (Net firms), not only because the Web site is their only interface with customers, but also because their performance depends largely on the success of their online activities. Thus, it is reasonable to expect that Web site redesign announcements will produce stronger wealth adjustment effects in Net firms than in traditional firms. Moreover, most of the Net firms generally have a relatively shorter trading life and more uncertain prospects of success and survival than other, more established firms do. Hence, any signal that provides investors with additional information about the likelihood of success or failure of publicly traded companies should produce comparatively larger valuation adjustments for Net firms than for more established organizations. This conjecture leads us to:

H2: Pure Internet firms will have larger valuation increases due to Web site redesign announcements than traditional firms will.

Porter and Millar (1985) suggest that the amount of information that goes into the development, delivery and/or utilization of the product or service affects the overall operations of the firm and the role of information systems. The degree of information intensity in the product and/or service is one of the key drivers of e-commerce strategies in general, and of Web site design in particular (Palmer & Griffith, 1998). Due to the high degree of information intensity in their products and business processes, financial and service firms may experience comparatively larger advantages in Web-based commerce than manufacturing firms, for whom there is lower information intensity in their core market offer (Palmer & Griffith, 1998; Porter & Millar, 1985). Thus, we expect that refining a Web presence will have a greater impact in service firms that can develop and/or deliver their product or services electronically. Therefore,

H3: Service firms will have larger valuation increases due to the redesign of their Web presences than manufacturing organizations will.

Announcing the refinement of a Web presence is not only an e-commerce signal but also an IT investment communication. The academic literature presents interesting findings regarding the effects of such disclosures on the market valuation of firms. For example, Dos Santos, Peffer and Mauer (1993) examined the impact of 97 announcements of IT investments between 1981 and 1988. They found no excess returns for firms announcing IT investments; however, their cross-sectional analyses reveal that innovative IT investments increase the value of firms while non-innovative investments do not. Dos Santos et al. (1993) classify an IT investment as an innovation when it represents the first use of a technology in an industry, when it would produce a new IT-based product or service, or when it would result in the development of new IT for an industry. In a follow-up study, Im, Dow and Grover (2001) extended the Dos Santos et al. sample with 141 IT investment announcements from 1989 to 1996. They found that, on average, IT investment announcements do not increase the value of the firms. One plausible explanation for their result is that investors are unable to ascertain the effect of these investments on firm performance.

In the case of Web site redesign, it is likely that the nature of the change - new functionality vs. improved usability - influences the direction and magnitude of the reaction. New functionality may be associated with an innovation in the Web site, while usability changes may be perceived by investors as cosmetic. Therefore, the claims made in a press release (content of the announcement) regarding the nature of the Web site changes may hold the key to understanding the market's reaction to the announcement. Specifically, the addition of e-commerce functionality, such as ordering capabilities, should produce a stronger positive reaction than layout, navigation or other usability improvements. Based on these conjectures, we hypothesize that:

H4: The addition of new functionality to a Web presence will produce larger firm valuation increases than usability improvements will.

METHODOLOGY: EVENT STUDY

An event study measures the economic significance of an announcement or project by establishing whether the return of a security due to an event is significantly different from the return that would have been forecasted for the same security had the event not occurred. The methodology is based on the efficient market hypothesis (Fama, Fisher, & Jensen, 1969), which predicts that financial markets efficiently process publicly available information to update the expectations of future performance. At any given time, the price of a security is information-efficient because it reflects all the available information about the firm's current and future profit potential. Thus, any news resulting from an unexpected event that may materially affect the firm's current and future profitability will produce changes in the firm's stock price to adjust it to the new assessment of the value of the firm. The amount of change in the price of a security due to the event, compared with its forecasted without-the-event price, reflects the market's unbiased estimation of the economic value of the new information (Brown & Warner, 1985). This estimation is used to calculate whether a particular event affects firm value.

Event studies are widely used in many business disciplines to investigate the impact of managerial decision-making, shareholder initiatives and other economic factors on the creation or destruction of firm value. In the IS field, the methodology has been used to study value creation through IT investments (Dos Santos et al., 1993; Im et al., 2001), e-commerce announcements (Subramani & Waiden, 2001) and Web site traffic milestones (Benbunan-Fich & Fich, 2004), among others.

We use the event study methodology to examine the excess stock return around the announcement date of a Web site redesign. The impact of the redesign is determined by estimating the price of the stock if the event had not occurred and then calculating the return actually earned by the firm. Abnormal stock returns are then computed by subtracting raw returns around the event date from the market model expected returns. These abnormal or excess returns are then accumulated over a pre-determined period surrounding the announcement (event window), to produce cumulative abnormal returns (CARs). If the difference between the expected stock price and the actual price is statistically significant, then it can be concluded that the redesign announcement had a meaningful effect on the market valuation of the firm. Furthermore, the magnitude of this difference provides a quantifiable indicator of the economic value of a Web site redesign project.1

A possible shortcoming of the event study method is that stock prices are naturally noisy; therefore, an event of interest must generate a reaction significant enough to be detected above the normal background noise of the stock market. A second limitation deals with the issue of the true event date. For some events, it is very difficult to pinpoint exactly when the actual information becomes publicly available. In some instances, information may leak out of its source before it officially becomes public knowledge, while in other cases the information may be broadcast at the end of the trading day, not giving investors enough time to react and trade.

Another possible limitation arises when different events occur around the same dates. Managers have a tendency to counter bad information with potentially good information, or the firm may experience other newsworthy events simultaneously, such as earnings or dividends announcements. When different news items are communicated at the same time, the reaction captured by the event study methodology may be confounded with events other than the one under study. In these circumstances, it is very difficult to establish which of the events caused the market reaction. Furthermore, some events may offset the impact of others and the firm may not experience significant changes in value. This offset effect may also occur in a single event situation. Since the market reaction is an aggregation of expectations, when these expectations are not consistent (some investors think it is good news, while others think it is not), the overall effect of the event on the value of the firm may not be significant (Chaney, Devinney, & Winer, 1991). Notwithstanding these limitations, event studies offer an unbiased estimation of the economic value and significance of an announcement.

RESEARCH DESIGN

To address the research questions underlying this study, we assembled a sample of firms that announced Web site redesigns. For this purpose, we collected, evaluated and classified relevant redesign press releases during 1995 to 1999. In order to examine our announcements using stock market data, we selected events related to publicly traded companies. Finally, we separated the sample by a criterion that appropriately allowed us to test our hypotheses.

Data Collection and Sample Selection

We obtained announcements of Web site redesigns through full-text database searches of Lexis/Nexis from January 1995 to December 1999. Redesign articles are defined as those containing the following keywords: redesign AND (Website OR Web site), and issued as PR Newswires or Business Wires. The initial search yielded a total of 630 articles, which included the redesign of products, magazines and production facilities. These non-relevant announcements were eliminated. Duplicate articles (those referring to the same redesign), and press releases announcing intentions or plans of redesign and/or the hiring of consultants for an upcoming redesign project, were also excluded. Only articles announcing the completion of a Web site redesign effort, for which there was no preceding announcement of redesign intentions, were selected.

A total of 213 announcements met these criteria (two in 1995, 21 in 1996, 39 in 1997,51 in 1998 and 100 in 1999). Since first-generation Web sites were first launched in 1994-1995, it is not surprising that the number of redesign announcements in 1995 is extremely small. Beginning in 1996, we found evidence of more Web site redesign efforts. These initiatives steadily increased over the sample period, doubling in magnitude from 1998 to 1999. Figure 1 shows the distribution of Web site redesigns during our sample period.

Sample Characteristics and Coding of Variables

For each announcement, we coded the ownership (public or private) of the companies that redesigned their Web sites. Like Subramani and Waiden, we differentiated between Net and non-Net (conventional) firms, where a Net firm is one that derives more than 50% of its revenue from Internet-related activities. Table 1 provides information on the total number of announcements for each year, along with ownership (public or private) and type of firm (Net or non-Net) making the announcements.

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To investigate which kind of firms make redesign announcements, we counted the number of press releases in each cell of a bi-dimensional contingency table, crossing ownership (public vs. private) and firm type (Net vs. non-Net). Table 2 presents the number and frequency of announcements for each category. The highest number of announcements is found in the public/non-Net cell, followed by traditional private firms and private Internet organizations. Notably, the lowest proportion of announcements corresponds to publicly traded Internet firms.

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From the 102 publicly traded companies making redesign announcements during 1995-1999, we extracted the releases referring to firms trading in the major stock exchanges (NYSE, AMEX or NASDAQ) for which trading data was available from the University of Chicago's Center for Research in security Prices (CRSP) database. We screened these observations and eliminated those that experienced a simultaneous news event (such as earnings, dividends, management or board changes) on the date of the Web site redesign announcement that could contaminate the reaction to the redesign initiative.

Our screening procedures yielded a final sample of 77 usable events. We classified each firm in our sample by whether the company is a manufacturing or a service organization, based on the firms' two-digit Standard Industrial Classification (SIC). Manufacturing organizations are those located in division D (manufacturing - codes 2000 to 3800), while service firms are those that belong to divisions E (transportation and communications), F (wholesale trade), G (retail trade), H (financial firms) or I (services). In Appendix 1, we show the distribution of announcements in each industry category. About 35% of the announcements in our sample referred to manufacturing firms, while 65% pertained to service organizations.

In addition, we classified each redesign announcement in the sample into functionality or usability, according to the content of the press release. Functionality announcements refer to the rollout of new functions or features, while usability disclosures describe site redesigns that augment information content, improve navigation or facilitate access to information. For the purposes of coding, a functionality-based redesign consists of adding a major function that was not present in the earlier version of the site. Examples include new electronic order forms, new online services, new community features (chat rooms, bulletin boards, community of users, etc.) and new interactive options for users. A usability-based refinement of a Web presence consists of general changes to the information content of the site and/or changes to the access to that information. These enhancements include streamlining the look and feel, faster and easier navigation, enhanced information content and improved search capabilities. In Appendix 2, we provide examples of announcements in each of these categories.

Event Study Parameters

The event study methodology requires a set of parameters to calculate the reaction of the market. The first parameter, the estimation period, refers to the length of time prior to the event over which the expected returns are calculated. The duration of the estimation period is often 255 days (about one year of trading data). The second parameter, the event window, refers to the period over which abnormal returns are accumulated. The windows are determined around the date of announcement, which is designated as 0. Although a one-day event window (day = 0) is usually recommended, several empirical studies use larger windows to capture pre-announcement information leakage and post-announcement delays. For example, a (-1, +1) window produces a three-day CAR, from one day before the announcement until one day after the announcement. McWilliams and Siegel (1997) recommend using short event windows around the announcement date, because in larger ones other news may affect investors' reactions.

EMPIRICAL TESTS

To test our first hypothesis, we estimated CARs for our sample of 77 redesign announcements. Although we focused on the (-1,+1) event window, we also computed abnormal returns for longer windows of (-3, +3) and (-5, +5). For each window, we report the t-statistic, which tests whether these CARs are significantly different from zero, the number of securities with positive and negative returns, and a generalized sign Z statistic. The null hypothesis for the generalized sign test is that the fraction of positive returns is the same as in the estimation period. Table 3 shows the results.

CARs were positive, with magnitudes of 1.03%, 1.47% and 1.58% for the (-1, +1), (-3, +3) and (-5, +5) windows, respectively. However, none is statistically significant. About 55% of the securities experienced positive CARs in the (-1, +1) window, but according to the generalized sign test, this is marginally higher than the fraction of announcements experiencing positive returns in the estimation period. Based on the event study results for the full sample over the three windows, firm value does not appear to be affected by Web site redesign announcements. Thus, we do not find support for H1.

Univariate Analyses

To test hypotheses H2, H3 and H4, we used the Net/non-Net firm categorization, the manufacturing/service classification and the content coding to respectively separate our 77 announcements. Table 4 summarizes the results of the event study for each category in the (-1, +1) window. For each sub sample, the table presents CARs, t-statistics, the number of positive and negative returns, and generalized sign tests. In the last column of the table, we report a t-test comparing the CARs in each pair of sub-samples.

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Our second hypothesis (H2) states that pure-Internet firms, but not traditional firms, will experience larger valuation increases due to a Web site redesign. To test this hypothesis, we use the Net vs. non-Net classification. As shown in panel A of Table 4, only 21 announcements fall into the Net category, while the remaining 56 fall into the non-Net category. The three-day CARs were 0.83% for the Net group and 1.10% for the non-Net group; however, neither is statistically significant. In the Net sub-sample, the proportion of positive returns was the same as in the estimation period, but in the non-Net group, the frequency of positive returns was marginally higher than in the estimation period. Moreover, our t-test showed that the average CARs in the Net group were not significantly different from the CARs in the non-Net group. Therefore, these results do not support H2.

The third hypothesis (H3) predicts that unlike manufacturing firms, service firms will have larger valuation increases due to the redesign of their Web presence. To test H3, we used each firm's industrial sector classification. As panel B of Table 4 indicates, about 40% of the announcements were placed in the manufacturing group. Consistent with our expectations, the reactions to Web site redesign announcements from service firms were on the order of 2.4%, which is significantly different from zero at the 5% level. In addition, the number of service firm announcements with positive CARs was significantly higher (also at the 5% level) than those in the estimation period. The CARs for low-information-intensive firms were negative (1.15%), but not significant. Nevertheless, our t-test of the CARs in the two sub samples showed that average CARs for the service sub-sample were significantly different (at the 5% level) from average CARs for the manufacturing sub-sample. Overall, these results support H3.

The last hypothesis (H4) indicates that the addition of new functionality to a Web presence will produce larger firm valuation increases than reports of usability improvements. To test this, we independently classified the announcements into two categories: functionality and usability. Initial inter-rater reliability was .77, as a total of 12 announcements were placed in different categories. After the disagreements were solved through discussion and consensus, 25 announcements were placed in the functionality category and 52 were classified as usability. Event study results, presented in Panel C of Table 4, show that neither of the content sub samples experienced significant market reactions. Average CARs are 0.71% and 1.18% for the functionality and usability sub-samples, respectively; neither one is statistically significant. However, the frequency of positive returns for usability redesign was marginally higher than the frequency computed in the estimation period. Finally, a t-test showed that the average CARs in the two sub samples were not significantly different from each other. Based on these findings, our results do not support H4.

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Multivariate Analyses

To study the joint effects of firm type, industry classification and information content, we examined our three-day CARs in a multivariate context. Specifically, we estimated the following regression models:

1. CAR^sub i^ = β^sub 0^+β^sub 1^net+β^sub 2^ind+ε^sub 1^

2. CAR^sub i^ = β^sub 0^+β^sub 1^net+β^sub 2^ind+β^sub 3^cont+ε^sub 2^

The dependent variable is the CARs over the three-day window (-1, +1) for each firm i. In the first model, the independent variables are the Net classification (1 if the firm is a pure-Internet company; 0 otherwise), and firm type (1 if it is service; 0 for manufacturing). The model in equation (2) adds a third categorical variable indicating content (1 if the announcement describes a functionality type of redesign; 0 otherwise). Both regressions are estimated with the full sample of 77 announcements.

Least squares coefficients are reported in Table 5. Model 1 is significant at the 10% level, and coefficient estimates for this model confirm that Web site redesign announcements for service organizations are well received by investors. Indeed, the coefficient estimate indicates that the impact of Web site redesign for service firms is economically meaningful, as CARs are 3.69% higher for service organizations. This result confirms our earlier findings regarding H3. Other results are also consistent with our univariate tests, as the firm type indicator (net) does not yield a significant coefficient. In the second model, the inclusion of the content indicator (functionality vs. usability) does not alter our results or improve the estimation.

Summary

An analysis of 213 public and private firms that made redesign announcements during 1995-1999 revealed that non-Net, publicly traded firms tend to make more redesign announcements than Internet and privately owned companies. However, we found no evidence of abnormal market reactions for 77 redesign announcements by publicly traded firms. We controlled for the effect of other variables, such as firm type (Net vs. non-Net), industry classification (manufacturing vs. service) and nature of the announcement (functionality vs. usability). Using these categorizations, we found that only the industry classification yielded statistically significant results. In fact, service organizations experienced statistically significant CARs, which were in turn, significantly larger than those experienced by manufacturing organizations. Interestingly, however, CARs related to manufacturing firms were negative but not significantly different from zero.

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DISCUSSION, LIMITATIONS AND IMPLICATIONS

Overall, that Web site redesign announcements do not generate significant adjustments for the full sample of publicly traded firms at a time when general e-commerce news (Subramani &Walden, 2001) and Web traffic announcements (Benbunan-Fich & Fich, 2004) does prompt market reactions, is noteworthy in itself. Several alternative explanations can account for this finding.

First, from the efficient market hypothesis' perspective, investors may not view redesign announcements as new information regarding the firm's ability to conduct business. Instead, it is likely that investors expect Web sites to frequently evolve, taking advantage of new technologies, implementing new strategies or accommodating a changing user base. Therefore, due to their constantly evolving nature, Web sites may be considered "work in progress," and so the announcement of a redesign may have little wealth adjustment value.

A second explanation is the possibility of time lag factors. On average, investors may have difficulties interpreting the implications of a redesign initiative immediately after it is announced. The success of a redesign depends upon how customers respond to the new version of the Web site, and on how this refined presence affects other indicators of performance, such as traffic or sales. It is only when these indicators change that the markets react, as Benbunan-Fich and Fich (2004) document for the achievement of Web site traffic milestones. Although the lack of reaction could be an argument for expanding the event window, a longer window may not unequivocally attribute excess returns to the redesign announcement.

Another explanation is that financial markets may indeed appreciate the value of the redesign, but the reaction is not strong enough to rise above the general noise of the market. The refinement of a Web presence may be a small event relative to the total value of the firm. In particular, for large publicly traded firms, changing a Web presence in one of the subsidiaries may not be strong enough to generate excess returns for the entire organization. Interestingly, to avoid this problem, Im et al. (2001) selected only IT investment announcements that were significant at the corporate level rather than at the division or sub-unit level. Given the size of our sample, we were unable to follow this approach.

Some limitations of this study warrant mention. The use of press releases as a source to identify the companies that change their sites may introduce some selection bias. First, only companies that announce their redesign activities through PR Newswires or Business Wires are selected. In fact, many more companies may have changed their sites and not issued a press release or used a different medium to communicate the news. Second, although we controlled for variables such as type of firm, industry and content of the announcement, the event study technique considers all events alike regardless of particular firm characteristics. Thus, there could be other variables (such as firm size or trading age) that may have a bearing on the results. A third limitation is the size of the sample. We start with a sample of 213 redesign announcements, but only a fraction was usable for the event study (publicly traded firms that have trading data available and did not experience a simultaneous news announcement).

Notwithstanding these caveats, our results have practical and academic implications. For practitioners, announcing the redesign of a Web presence is part of legitimate promotional efforts aimed at communicating the availability of an enhanced Web presence. Our findings suggest that investors do not assign significant value to such initiatives upon their announcement. However, other constituents may react positively to this kind of communication. For example, customers may want to visit the new version of the site. From the research standpoint, our results calibrate the findings of other empirical studies and contribute to the development of a taxonomy of e-commerce initiatives and IT investments that increase firm value.

There are several possible extensions to this work. One would be to study in more depth the nature of the changes introduced in the redesigned version of the sites. In this regard, Benbunan-Fich and Altschuller (2005) performed a more extensive content analysis of site redesign press releases from public and private firms in the late 1990s. Their findings describe in detail the nature of the usability improvements and functionality enhancements.

A second possible extension to the research presented here would be to include more recent observations in the sample. Given the exponential increase in redesign announcements over the years, the addition of the years 2000-2002 will increase sample size considerably. In a larger sample, it may be possible to select only redesign events that are relevant at the corporate level and investigate whether these produce excess returns. An expanded sample may also enable the separation of service firms into financial and non-financial organizations in order to examine whether redesign efforts add more value to financial organizations than to other types of service organizations. Despite these potential advantages, others have augmented their sample to include more recent years without much success. For example, Benbunan-Fich and Fich (2004) did not find significant valuation increases due to Web traffic milestones during 2000 and 2001, even though they found significant firm value increases during the late 1990s.

Finally, another potential extension would be to study the impact of redesign announcements on the Web-consulting firms that were hired for the project and are mentioned in the press release. For these consultants, the completion of a redesign initiative may be perceived as an endorsement of their qualifications and expertise.

CONCLUSION

In this article, we investigated whether certain types of e-commerce initiatives, particularly Web site redesigns, add value to firms. From an initial sample of 213 press releases announcing the completion of Web site redesign efforts from 1995 to 1999, we observed that traditional (non-Net) publicly traded firms tend to make more announcements than other types of firms. We used the event study methodology to examine market reactions for 77 announcements related to Web site redesigns. Our results indicate that, on average, redesign events do not induce significant valuation adjustments when first disclosed. It is possible that over time, successful redesigns affect other variables, such as sales or traffic, and these, in turn, will increase the value of the announcing firms.

In order to control for the type of industry, we divided the sample into manufacturing and service organizations. Significant CARs were observed for firms in the service sector, indicating that these firms benefit more from Web site redesign initiatives than those that manufacture products. Our multivariate tests revealed that, in fact, three-day CARs were 3.69% larger in magnitude for service companies. Interestingly, however, no significant CARs were observed when the sample was sorted by whether companies are Net or non-Net firms. In terms of content, it appears that the nature of the changes communicated in the announcement, as operationalized here (functionality vs. usability), does not affect the direction and magnitude of the reaction. The value of a redesign initiative appears to be sensitive only to the industry classification of the firm making the announcement.

The empirical literature in IT investments and e-commerce announcements offers a fertile ground to explore the nature of the different signals communicated via press releases by publicly traded companies. Given the results presented here and the mixed evidence recently reported by related studies, there appears to be enough incentive for researchers to investigate which type of IT projects truly affect firm value.

ACKNOWLEDGMENTS

We are grateful to Shoshana Altschuller, Mike Gallivan, Marios Koufaris, Detmar Straub, the editor, associate editor and three anonymous reviewers for very helpful suggestions. We thank May Li and William Hampton-Sosa for capable research assistance. This research was funded in part by a grant from The City University of New York PSC-CUNY Research Program, Grant # 64554-00 33 awarded to R. Benbunan-Fich. The opinions expressed herein are solely those of the authors and not those of the sponsors of this project.

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