Participation in setting technology standards and the implied cost of equity

Xin Deng, Qian Li () and Simona Mateut

No 2020-29, Discussion Papers from University of Nottingham, GEP

Abstract: This paper empirically investigates the financial market’s reaction to firms’ participation in developing standards coordinated by Standard Setting Organizations (SSOs). We present the first causal evidence on the influence of SSO membership over a firm’s implied cost of equity capital - the discount rate applied by investors to its expected future cash flows. Our analysis utilizes a panel of 3,350 U.S. public firms and their memberships in 183 SSOs operating in Information and Communications Technologies (ICT) fields between 1996 and 2014. We find that participation in SSOs results in a significantly lower cost of equity for member firms, using exogenous variations from SSO closures and instrumental variables. This reduction is more pronounced for a firm’s first SSO membership, in ICT firms, among members of most influential SSOs and in certain technology domains. We empirically document the contingent role of three potential mechanisms identified by our conceptual framework - technological uncertainty, market uncertainty and information environment – through which SSO membership can affect financial outcomes.

Keywords: cost of equity; uncertainty; technology standards; Standard Setting Organizations (SSOs) (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cfn and nep-ict
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Journal Article: Participation in setting technology standards and the implied cost of equity (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:2020-29

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