A research article by Dr. Ziqing Yuan, Assistant Professor at the Faculty of Business, City University of Macau, titled “The Effect of Mobile App Initiatives on Stock Returns: A Market-Driven Perspective,” has been published in the Journal of the Association for Information Systems (JAIS), the flagship journal of the Association for Information Systems (AIS). Dr. Yuan is the first author, and the Faculty of Business, City University of Macau is the first affiliated institution. Co-authors include Professor Hailiang Chen of the University of Hong Kong and Professor Choon Ling Sia of City University of Hong Kong.

The Journal of the Association for Information Systems is the flagship journal of the Association for Information Systems (AIS) and one of the most widely recognized top-tier journals in the information systems field. It is among the AIS Senior Scholars’ “Basket of Eight” (the eight premier IS journals), is rated ABS (AJG) 4* and ABDC A*, and is indexed in SSCI and JCR Q1. It holds significant influence in the global information systems and management research community.

Main Content

This study examines the impact of a firm’s first mobile app release (a “mobile app initiative”) on its stock market value. Grounded in the resource-based view combined with a market-driven perspective, it employs event study methodology to analyze the first mobile app releases of 761 U.S. public firms on the Apple App Store and Google Play between 2008 and 2017. The results show that, on average, these firms experienced a significant negative abnormal return of -0.193% on the day they released their first mobile app, and that short-term value creation was highly contingent on the firm’s market position and information technology (IT) capabilities. Meanwhile, the positive relationship between the number of active users and long-term abnormal returns suggests that mobile app adoption and user engagement are crucial for sustained market value.

The study focuses on the market valuation of mobile app investments—an important topic—and integrates external (market) and internal (resource) perspectives to examine how investors evaluate customer-facing digital initiatives such as mobile app releases. It reveals the challenges and potential underlying mobile app initiatives and offers useful reference for understanding how capital markets value IT investments. At the same time, this research also demonstrates the sustained commitment and academic strength of our university and faculty in high-impact international research.

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”

— Benjamin Graham

Details

The article at a glance

Releasing a first mobile app triggers an average abnormal return of -0.193% on the release day; however, the value of this investment is not “one size fits all”—it depends on the firm’s market position, IT capabilities, and its subsequent ability to accumulate enough active users.

What is a “mobile app initiative”?

A “mobile app initiative” refers to a firm’s first release of a mobile app on the Apple App Store or Google Play (or both). This event marks the firm’s formal entry into the mobile app market—an important, customer-facing digital investment.

Why do investors initially react with caution?

The study finds that firms experienced an average abnormal return of -0.193% on the day they released their first mobile app, significant at the 1% level. This negative reaction reflects investors’ uncertainty about whether the app will succeed: industry data show that only about 0.5% of mobile apps succeed, and more than 67% fail to reach 1,000 downloads; moreover, apps are highly susceptible to imitation, which further weakens their potential as a source of durable competitive advantage.

When does a mobile app create value?

A key finding is that short-term value depends heavily on firm capabilities: firms with a strong market position (ranking among the top three by market share in their industry) or strong IT capabilities (ranked in the InformationWeek 500/Elite 100 top 100 at least twice in the three years prior to the event) received more favorable market reactions upon releasing their apps. Investors do not view apps as isolated technological innovations, but as extensions of a firm’s existing capabilities.

A more dynamic picture: users matter

Although the release-day reaction is negative, the market gradually incorporates “actual usage”: there is a significant positive relationship between active users and future abnormal returns. Further analysis reveals a “Matthew effect”—apps whose usage exceeds the sample average (“critical”) see user growth significantly boost subsequent stock returns, whereas for apps below the average (“peripheral”), this relationship is insignificant. This suggests that the release-day negative reaction reflects investor uncertainty, which is subsequently either corrected or confirmed by later performance.

Why engagement features alone aren’t enough?

The study finds that “engagement-related features” such as gamification, social features, personalization, and push notifications have no significant effect on the release-day market valuation. This is because such features are easily and rapidly replicated by competitors and cannot satisfy the resource-based view’s “valuable, rare, inimitable, and non-substitutable” (VRIN) criteria, making it difficult for them to constitute a sustainable competitive advantage.

What does this mean for firms?

The study suggests that large firms (with high market share) should prioritize apps with “revenue-generating” functionalities to fully leverage their brand and user base, while smaller firms should be more cautious about monetization—prioritizing user accumulation and strengthening IT capabilities before pursuing profits prematurely. For managers, the focus should be on long-term user engagement rather than short-term market sentiment.

A new information source for financial markets

The study also finds that mobile app usage can predict stock returns, offering a new information source for financial markets. For analysts and market participants, tracking the trend of a firm’s active app users can help assess the potential risks and returns of its investments more accurately.

Three analyses behind the findings

Using first mobile app release data for 761 U.S. public firms between 2008 and 2017, and estimating abnormal returns with the Fama-French five-factor and Carhart four-factor models, the study supports its main conclusions through three analyses:

• Event study test: Firms experienced an average significant negative abnormal return of -0.193% on the day of their first mobile app release.

• Capability–value association test: Firms with stronger market position and IT capabilities received more favorable market reactions upon releasing their apps.

• Usage and long-term returns test: Active users are significantly positively associated with future abnormal returns, exhibiting a “Matthew effect”; the study also rules out alternative explanations such as information leakage and market inefficiency.

Key takeaway

A key conclusion is that a mobile app’s value does not come from “possessing” the app itself, but from the “synergistic integration” of the app design with the firm’s unique capabilities and user engagement. If the VRIN criteria are not met, app investment may even lead to value destruction. In other words, an app should be viewed as an “enabler” that supports the firm’s existing capabilities, rather than a “panacea” that automatically creates value.

Practical implications

For investors and analysts

Releasing a mobile app may trigger a short-term negative reaction, but long-term value depends on user engagement. Analysts and market participants can assess the true value of a firm’s digital investment more accurately by tracking active user numbers.

For managers

Managers should focus less on short-term market reactions and more on attracting and retaining users. Large firms should develop revenue-generating apps, while smaller firms should defer monetization and first accumulate capabilities and users.

For understanding IT valuation

For customer-facing digital investments such as mobile apps, value is shaped by both internal (resource) and external (market) factors and should be assessed from an integrated perspective.