The impact of electronic commerce assurance on financial analysts' earnings forecasts and stock price estimates

The objective of this study is to assess the impact of electronic commerce (EC) assurance on earnings forecasts and stock price estimates of financial analysts. The theoretical foundation of the current study is based on the information hypothesis (Fama and Laffer 1971; Wallace 1980), which supports the notion that EC assurance is a means of reducing information asymmetry and uncertainty for financial market participants. In the first phase of th is study, a survey of 37 financial analysts indicates the importance of ven dor- and outcome-based risk factors when forecasting the financial performa nce of firms engaged in EC. In the second phase, 87 analysts participate in a 2 (high and low vendor-based risk) x 2 (high and low outcome-based risk) experiment. As hypothesized, EC assurance significantly increases earnings forecasts and stock price estimates in the high-risk, as compared to the l ow-risk, condition. In addition, a significant interaction term is obtained such that EC assurance yields a pronounced impact when both vendor- and ou tcome-based risks are high. The findings suggest that EC assurance reduces risk for market participants, thereby generating higher expectations of fir m performance and value.