University of Twente Student Theses
Market value of AI: Does investing in AI pay off?
Orlé, C.P.W. van (2024) Market value of AI: Does investing in AI pay off?
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| Abstract: | This study investigates the effect of investments in artificial intelligence on the market value of publicly traded companies, focusing on three primary hypotheses. Following a structured approach, which starts broad and becomes more specific, this research examines the relationship between R&D investments and market value, the influence of media attention on market value, and the market’s reaction to AI-related announcements. Data was collected from firms listed on the S&P 500 index over the period from 2013 to 2023. The methodology includes three main steps. First, regression analysis using both the Ordinary Least Squares and Fixed-Effects methods to evaluate the immediate and delayed effects of R&D investments on market capitalisation. Second, similar regression methods were conducted to assess the impact of media attention, measured as the number of AI-related news announcements, on market value. Third, an event study was conducted to investigate the market reaction following AI-related news announcements. Using a funnel approach, the sample starts with 500 firms for the R&D investment analysis, narrows down to 50 firms for the media attention analysis, and further focuses on 5 firms for the event study. The results demonstrate a significant positive impact of R&D investments on market value in the short-term, with diminishing effects over the long-term. Media attention significantly influences market value, indicating that firms with higher visibility of their AI initiatives benefit from increased investor confidence. Event studies reveal that AI announcements lead to varied market reactions, with the overall sample showing positive abnormal returns as an immediate effect. This research underscores the critical role of continuous innovation and strategic communication in enhancing market value. The findings provide valuable insights for managers and investors regarding AI investments, highlighting both the benefits and potential risks associated with these investments. |
| Item Type: | Essay (Master) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 83 economics, 85 business administration, organizational science |
| Programme: | Business Administration MSc (60644) |
| Link to this item: | https://purl.utwente.nl/essays/102308 |
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