Shareholder reaction to firm investments in the capability maturity model: an event study

Abstract

This study investigates the differential effects of successfully completed capability maturity model (CMM) appraisals on a firm's short-term and long-term stock performance. Our results indicate a positive share price response on the days surrounding the appraisal date for the stocks of companies obtaining the CMM appraisal. Stocks of firms successfully completing CMM appraisals generally outperform the S&P 500 index over longer-holding periods, although they do not outperform a matched sample. We find support that firms from the information technology industry, firms that are larger, firms of higher CMM maturity levels, and firms completing multiple appraisals are more likely to experience both short-term and long-term benefits from their investing in the CMM.

Keywords:

• event study
• Capability Maturity Model (CMM)
• Total Quality Management (TQM)
• stock price
• resource-based view (RBV)
• software process improvement (SPI)

Additional information

Notes on contributors

Greg Filbeck

About the authors

Greg Filbeck is a Professor of Finance at the DBA University of Kentucky (1990), CFA, FRM, PRM, CAIA. He has published over 65 articles in refereed journals. He has held the Black Family Endowed Professorship of Insurance and Risk Management at Penn State Erie since 2006. He previously held academic positions at Miami University and the University of Toledo and has served as a Senior Vice President of Schweser.

Matthew Swinarski

Matthew Swinarski is an Associate Professor of Management Information Systems, Ph.D., State University of New York at Buffalo (2002). His research interests include IS outsourcing, IS capabilities, and IS education. He has published in Decision Support Systems, Communications of the AIS, and Advances in MIS. His industry experience includes installation, configuration, and service contact management of ERP systems.

Xin Zhao

Xin Zhao is an Associate Professor of Finance, Ph.D., State University of New York at Buffalo (2004). Her research interests include market microstructure, portfolio managements, and corporate governance. She has published in over 20 articles in refereed journals. She has working experience in Da Hua CPA and China Petro-chemical Corporation.